Why the pension settlement may save even more than $3.9B

February 19th, 2014 at 6:12 pm by under Nesi's Notes, On the Main Site

Much of the reporting about last week’s pension settlement has focused on the number $3.9 billion, which is the amount of savings the deal would lock in compared with the status quo before the 2011 overhaul.

But that may actually understate the amount of savings state officials would lock in by getting unions and retirees to approve the settlement. The reason is because under the terms of the deal, the unions and retirees wouldn’t just drop their lawsuits challenging the 2011 law – they’d also drop an earlier lawsuit that aims to overturn pension changes made by the General Assembly in 2009 and 2010.

The savings from the 2009 and 2010 changes weren’t included in the estimates put out during last week’s settlement announcement, which used as its baseline the unfunded pension liability at the time of the 2011 overhaul (currently estimated at $8.9 billion, including $8.3 billion for state employees and teachers). There’s no comparable estimate for the 2009 and 2010 changes available online at this time.

Nevertheless, to get a full picture of how much the unions and retirees are agreeing to give up under the terms of the proposed settlement, you’d want to add in the savings from the 2009 and 2010 changes – because if they wound up prevailing in full in court, the clock would be set back to the pre-2009 pension system, not the pre-2011 one. And they already won the first round fighting the 2009 and 2010 changes.

To get a sense of how much money we’re talking about, take a look at the actuarial valuation conducted after the 2010 changes (sometimes described as “Article 16″ because of the state budget provision that enacted them). Passage of Article 16 led the actuaries to reduce the unfunded pension liability for state employees and teachers by nearly $114 million.

And that was all before the State Retirement Board’s April 2011 vote to lower its expected investment return and change its longevity forecast for retirees. Those sharply increased the unfunded pension liability overall, so they’d also likely increase the size of the savings from the 2010 changes. And all this is before we even look at whatever money was saved from the previous round of pension changes in 2009.

Put it all together and it seems that, by ending challenges to three separate rounds of benefit reductions, the pension settlement could lock in a reduction in the state’s unfunded liability of more than $4 billion.

• Related: Chart: RI’s pension shortfall, with and without the settlement (Feb. 17)

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9 Responses to “Why the pension settlement may save even more than $3.9B”

  1. John in Woonsocket says:

    It’s just SOOOO hard to TRUST our state government when they are working hand-in-hand with the union leadership.

  2. Snow says:

    It was the 2009 and 2010 changes that decimated those who were still working. The 2011 changes hurt retirees, but workers already lost a good portion of their benefits by then.

  3. Snow says:

    I know considering the pension changes from the workers perspective doesn’t benefit WPRI or any other media source, but perhaps a nice chart could be made to show how much we have lost. I appeal to your chart making skills, ted, and also, you are the only media person who has a grasp on the pension issues in their complexity. You get into the weeds, instead of parroting the press releases from the governors’s office. I think the public would be served to know what all these changes have cost workers. I realize people blame state workers and teachers for the demise of the economy. No matter how absolutely false and foolish that is, I believe people would open-mindedly try to see the changes from the workers point of view, whether they agree or not. I could be wrong.

  4. [...] which strongly supported the 2011 law and has argued against changing it, but thinks the 94% (at least) savings locked in by the proposed settlement makes it worth supporting. “In our view, a deal [...]

  5. Fruma says:

    Retirees and workers haven’t agreed to it yet but it is true that the process for voting is so rigged that it is a sham. I’m surprised dictators didn’t think of it themselves. I guess you need a Harvard education to come up with a system whereby anyone not voting is automatically counted as a yes vote and everyone in the affected group loses their right to mount a legal challenge if the vote is affirmed.

  6. charlie says:

    Any deal that leaves the general assembly access to the retirement fund is a bad idea.

  7. Steve Lemois says:

    The operative word in this is “MAY”. MAY save even more….

  8. [...] 1. Don’t believe anybody who says they’re sure of whether the pension settlement is going to go through. As I chronicled Thursday, there at least 10 flavors of opinion on the merits of the deal, a sign of how fluid and heated the debate around it is. That said, keep in mind that the settlement doesn’t necessarily have to be popular to pass. That’s particularly true during the upcoming first round of votes by union and retiree plaintiffs, which must be finished by mid-April. As Kathy Gregg first noted, a ballot that isn’t returned will be counted as a “yes” – so rank-and-file opponents of the deal have to convince at least 50% of their brethren to affirmatively mail in a ballot marked “no” to kill it. That’s a tall order when the voters are split into six groups that won’t be gathering together in any local union hall: state workers, teachers, police officers, firefighters, municipal employees and retirees. Put another way: the deal’s proponents are organized and well-financed; the opponents aren’t. Still, it’s possible a groundswell of opposition could torpedo it. But if the settlement passes that vote and a second one on the union/retiree side, labor lobbyists only need to convince half of the state legislature to back the deal to get it enacted. That seems doable, particularly if proponents of the settlement can win the spin war by highlighting how lopsided its financial impact is. [...]

  9. [...] cover not only unions’ challenge to the 2011 pension overhaul but also their earlier suit opposing pension cuts enacted by the General Assembly in 2009 and 2010. The start of a trial presumably would not block the two sides from completing a settlement and [...]