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Public pension plan pitched

October 19, 2011

PROVIDENCE — The die is cast.
A massive 200-page bill, months in the making, to radically change public employee retirement payments for everyone from the newly-hired worker to the longest-surviving pensioner was finally introduced in both the House and Senate on Tuesday, ending an extended period of public expectation and speculation.
General Treasurer Gina Raimondo, the architect of the painstakingly designed plan, says that if it is passed as presented, it will immediately reduce the state pension system’s unfunded liability by $3.2 billion, will save taxpayers an estimated $3 billion over the next 10 years and will permanently fix this system so it is never again in danger of going broke, or busting the state budget with payments to keep pension checks coming.
“The state of Rhode Island has never seen a pension reform like this,” Raimondo said Tuesday. “This is a massive overhaul of every aspect of the state pension system.”
Details of the plan have been a poorly-kept secret in recent days.
• The current defined benefit pension plan will be converted to a “hybrid” plan that will keep a greatly pared-down defined benefit supplemented by a 401(k)-type defined contribution plan that will shift about half of the risk now borne by the state to keep up payments in the face of lower-than-expected return on investment to the employees.
• The current COLA currently tied to the inflation rate with a 3 percent cap on the first $35,000 of pension benefit will be frozen until each pension plan – schoolteachers, state employees, State Police, judges and municipal employees – reaches 80 percent funding (estimated to be nearly two decades for teachers and state employees). When and if the COLA is restored, it will be on a new formula tied to the performance of the pension system’s investments. There is a provision to restore a reduced COLA to people whose pension benefits are $20,000 a year or less once the plan is 70 percent funded.
--- State workers currently pay 8.75 percent of their salaries to their pensions and teachers 9.5 percent. The bill would change that to a 3.75 contribution to the defined benefit plan for each and a 5 percent contribution to the mandatory defined contribution plan with a 1 percent state match.
--- The current 30-year reamortization plan, which still has 19 years to go, would be extended out to 25 years to prevent payments from spiking in certain years and to remove the necessity for deeper cuts in benefits.
--- Cities and towns that have independent pension plans that are not part of the state system face changes as well. Each must get an actuarial experience study for all of their plans by April 1 of next year. For each plan that is less than 60 percent funded, the municipality will have to present a remediation plan to a “solvency review team” appointed by the state. If that remediation is not approved, then at the expiration of each collective bargaining agreement COLAs will be suspended and state aid could possibly be withheld and diverted to the pension funds.
Raimondo stressed many times, first at a press briefing and later in remarks to legislators, that this is a permanent fix to the pension system that contains self-correcting measures, such as tying the size of future COLAs (Cost Of Living Adjustments) to the performance of the fund’s investment returns. “The state will never again pay a COLA it can not afford,” she said.
“This pension,” Raimondo told reporters, “we are moving from the political to the actuarial. Never again do we want to be in a place where politics dictates or has the opportunity to weaken our pension system. So we are designing this on a going-forward basis to remove pension changes, should they be needed, from the political process. The COLA will automatically turn on and turn off without any action from the General Assembly. The General Assembly, if they pass this reform, will never touch the COLA, it comes back automatically.”
But despite much happy talk about the historic nature of the reform effort, and the cooperation among Raimondo, Gov. Lincoln Chafee, House Speaker Gordon Fox and Senate President Teresa Paiva Weed to bring it about, there were early indications Tuesday that the bill’s ride along the legislative process could be a bumpy one.
As soon as the measure was introduced in the House of Representatives and referred to the Finance Committee, squabbling broke out among members about how potential amendments would be handled when it reaches the House floor. Republican Rep. Joseph Trillo of Warwick and Lincoln Rep. Rene Menard, an often dissenting Democrat, peppered Fox with questions about amendments, expressing skepticism that amendments would get full consideration and would not be dismissed on the basis that a full actuarial report could not be done on each or that a “Substitute A,” making comprehensive changed to the entire bill would not be sneaked in at the last minute, short-circuiting amendments that had been prepared for the original bill.
On another front, Chafee, Raimondo and the legislative leaders were still chatting after a joint news conference to answer questions about the proposal when labor leaders and other lobbyists outside the chamber were promising court challenges to the changes.
“I would expect there would be litigation,” said George Nee, president of the RI AFL-CIO. “This is the first time they have ever gone after retirees so it would be hard to imagine there wouldn’t be litigation.”
Robert Walsh, executive director of the National Education Association of Rhode Island, the state’s largest teachers’ union, told reporters that workers retired from their jobs based on pension promises they were made and a plan they paid into so, “it’s going to end up before the courts, there’s just no two ways about it.
“We’re going to try to encourage amendments to mitigate some of the most damaging areas and, inevitably, a lot of this is going to end up being litigated. Any individual retiree can carry forward a lawsuit and there will be more than one doing that.”
Throngs of unionized state and municipal employees, a great number of whom were firefighters from various communities, crowded the corridors of the Statehouse before the House and Senate met for a joint session to present the pension bill. They packed the public viewing areas in the House chamber and the overflow rooms that showed the session on Capital Television.
Both Fox and Paiva Weed said they embraced the pension reform plan – each used that word – and they predicted it would pass in both chambers. They did not, however, rule out the possibility that amendments would be made during the course of the legislative process.
At that press conference, Raimondo too allowed for the possibility that improvements might be made to the bill during the legislative process, but at an earlier briefing with reporters she said: “You can’t pick this apart. This is presented as a package; it is the result of 10 months of listening, of open dialogue, of hundreds of actuarial runs, of legal analysis. It is designed to work as a package and balance all of the interests and be fair to everyone. It would be a mistake and a huge disservice to the people of Rhode Island to water down this bill or fundamentally change it. It won’t work. It is in no one’s interest to water down the bill.
“Obviously the legislative process is a good one, it should work, I actually believe there are many ways the General Assembly can improve upon this bill” she added. “We are absolutely open to changes. What I will not support and will oppose is something that waters it down or fundamentally changes it.”
EngageRI, a predominantly business-backed group that has been collecting money from anonymous donors and running pro-pension-reform advertisements issued this statement after the legislative session: "We are thrilled to be here to witness the beginning of the next chapter in Rhode Island history," said Ed Cooney, Senior Vice President, Nortek and Co-Chairperson of EngageRI. "We fully support the principles upon which this bill was built and look forward to ensuring that the voices of all Rhode Islanders are heard during the legislative process. We want to commend Governor Chafee, Senate President Paiva Weed and Speaker Fox for their commitment to this critical issue. And of course we must recognize the leadership and determination shown by State Treasurer Gina Raimondo for creating the path to reform."


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