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Pension reform bill signed into law

November 23, 2011

Gov. Lincoln Chafee signed the Rhode Island Retirement Security Act into law early this week.

SOUTH KINGSTOWN – Rep. Spencer Dickinson (Dist. 35 – South Kingstown) did not think making up for 3.57 percent of the budget was reason enough to vote yes to breaking the contract of state and municipal workers Thursday night.

South Kingstown’s legislator was only one of 15 representatives to vote no to Governor Lincoln Chafee’s and General Treasurer Gina Raimondo’s bill to overhaul the state pension system. After hours of session, in which the House and Senate meant simultaneously on the same bill, the House voted 53-to-15 to pass the bill, beating down more than two dozen amendments crafted to block or reduce changes to the state pension system. The Senate passed the bill 34-to-2. Governor Chafee signed the bill into law Friday afternoon using 15 pens to give his signature to the first law in the country to alter the benefits of both current workers and retirees.

The Rhode Island Retirement Security Act (RIRSA) moves most employees into a hybrid plan that combines a traditional guaranteed pension payment with a 401(k)-style retirement savings account. The annual cost-of-living adjustments are a suspended until the pension fund reaches 80 percent investment return. Yet, interim COLAs could come back every five years until the fund achieves that 80 percent. COLAs would be limited to four percent and would only cover the first $25,000 of a retiree’s annual pension payment. This was a change from the original bill proposed in October which required retirees to wait 19 years until the pension system was 80 percent funded before receiving a COLA increase. The adopted bill also creates an individualized formula for retirement ages between 59 and 67 years old that would reduce the new target age based on how close current employees are to the retirement age before the new system takes effect July 1, 2012. The original bill had set the retirement age for all employees to age 67, the retirement age for Social Security.

The adopted bill eliminates a provision from the original version that would have added additional legal authority for municipalities running independent pension systems to reduce their COLAs they pay to retirees, a priority among local mayors and the Governor. Now, locally run pension plans will require study to determine their financial health.

“We saw what can happen when a thoughtful process and leaders come together for the people of Rhode Island,” Raimondo said. “The Rhode Island Retirement Security Act passed because Rhode Islanders called for action and change. Passage of this bill is a great step forward as we continue to work to put our state on a secure path toward growth and prosperity.”

According to the General Treasurer’s office, the pension overhaul saves taxpayers approximately $4 billion over the next 24 years and brings the funding status of the state-administered pension system from 48 percent funded to over 60 percent funded. Without reform, the pension system would have cost taxpayers $689 million next year. Reform drops that amount to $414 million and reduces the unfunded pension liability from $7.3 million to $4.3 billion.

Though the General Treasurer has touted her plan has fair over the past month, some local legislators have their doubts.

“The bill is extremely burdensome and unfair to state workers and teachers. It could have been made a lot better without hurting the real goal of pension reform,” Dickinson said. “The General Treasurer framed it as taxpayers versus state workers. It’s a shame. We benefit from what our state employees and teachers do for us. We owe them respect. They are not at fault. The previous legislatures are at fault for not addressing this years ago.”

Dickinson said with more time the General Assembly could have done something to accommodate workers who need their pension and the cost-of-living adjustments to survive in an increasingly inflationary economy.

With the House and Senate considering RIRSA simultaneously, leaving little chance for amendments, Dickinson said, “the process was not a process of deliberation. It was an open and closed case before it started. I couldn’t be a part of that. Every single [amendment] was voted down. In order for that to happen, the speaker and senate president have to know ahead of time that the bill is going to pass. It doesn’t allow for participation.”

Dickinson suggested that the General Treasurer may have inflated the pension crisis. According to numbers he obtained from the House Fiscal Advisor Sharon Ferland, he explained that the pension problem only makes up 3.57 percent of the state annual budget. Dickinson stated that the annual state budget is $7.7 billion. According to Raimondo, the state is short $7 billion and the pension fund should be $14 billion. The annual cost of being $7 billion short is $275 million, which is only 3.57 percent of the budget. Dickinson questioned whether this was a compelling enough reason to break the contract of state employees and teachers.

After the bill’s passage, the nine state employee unions, representing about 30,000 state and municipal workers did not hesitate to say they would act in unison to challenge the breach of contract in court.
President of National Education Association-South Kingstown [NEA-SK] Christine Heid said she was still disappointed about the loss of COLAs. She questioned why the state lawmakers could not revisit the COLAs each year as they prepare the annual budget, rather than every five years.
Like Dickinson, Heid said the General Treasurer’s language pitted state workers and teachers against taxpayers.

“It divides people. It pits struggling people against other struggling people,” Heid said. “Our lawmakers may be reducing fiscal problems, but I think they’re creating other problems in making this about pitting all these workers participating in the pension system against taxpayers when every single one of us is a taxpayer.”

Though other local legislators approved the bill, they continue to have some reservations.

Rep. Teresa Tanzi (Dist. 34 – Narragansett, South Kingstown) voted yes to the bill because “to vote against it and have it defeated, the cost would be unbearable to the community.”

Senator James C. Sheehan (Dist. 36 - Narragansett, North Kingstown) stated “this isn’t cause for celebration. It’s something we had to do. The cost of doing nothing was too great for the whole state.”

Rep. Donna Walsh (Dist. 36, Charlestown, New Shoreham, South Kingstown, Westerly), a retired school teacher said though she was still concerned about the people with low incomes who will not see their COLAs for at least 5 years, she supported the bill because without reform, the current pension system would be unsustainable for both the state and four towns she represents.

Walsh and Tanzi said they were happy to see the House and Senate leadership and the General Treasurer work with the legislators to mitigate their concerns.

Both were glad to see one of the General Assembly members proposed changes, a 5.5 percent tariff on state departments who contract services rather than hiring a full-time state employee was included in the single amendment, Sub-A adopted Thursday. The tariff is designed to penalize departments who by contracting services short the state pension fund on contributions it would receive from a full-time employee.

The local legislators said they were satisfied to see the state leaders meet the lawmakers half way by changing the increased retirement age from 67 to an individualized formula that allows those closest to retirement to retire earlier.

“It had the effect of rounding out the sharp edges,” Sheehan said.
Over the past month, Tanzi questioned why judges were excluded from the changes to the system. Though she was happy to see in the final bill, judges were included, she continued to question why state police got to keep their defined benefit.

Revisiting the COLAs every 5 years, Tanzi worried would leave many close to the 200 percent of the federal poverty level with a $21,000 pension.

Senator Susan Sosnowski, (Dist-37 New Shoreham, South Kingstown) and Rep. Donald Lally, Jr. (Dist. 33, Narragansett, North Kingstown, South Kingstown) did not return phone calls for comment.

Southern Rhode Island Newspapers
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