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SOUTH KINGSTOWN â€“ Knowing that without pension reform, South Kingstown faces an unfunded liability of $19.7 million for its municipal employee retirement system, the Town Council supports pension reform and last week's amendments to the state pension bill.
The original pension reform bill proposed by Gov. Lincoln Chafee and state Treasurer Gina Raimondo was put forth last month to address the mounting $7.3 billion pension liability that has threatened the state. In the original bill, the pension system would have changed the current system to a new hybrid plan that combines a traditional pension guarantee with a 401(K)-style plan, a suspension of cost-of-living increases for Rhode Islandâ€™s retired government workers for up to 19 years, and a higher retirement age up to 67 years old for current workers 51 years of age. Yet, after much debate, including a protest by public workers at the state capitol in Providence and four public hearings, the Treasurer came forth last week with amendments to her proposal.
Amendments include changes to the most controversial proposals: the suspension of the COLAs and the increase in the retirement age to age 67. The Senate and House Finance Committees voted last Thursday, approving the revised bill. The full General Assembly is set to vote on the bill tomorrow.
The amendments would subtract about $200 million in savings toward the state's unfunded pension liability from the original bill, but Raimondo stated in a press release the new proposal will continue to have a â€śhealthy funded status as the original proposal as well as keep the pension costs in next year's budget steady and costs predictable for taxpayers in the decades to come.â€ť
The new amended bill allows for the cost-of-living adjustments tied to investment returns to come back once every five years until the system is 80 percent funded. Under the revised bill, the COLAs would be limited to four percent and would only cover the first $25,000 of a pension. The original legislation had required retirees to wait until the pension system was 80 percent funded before receiving a COLA increase, which was estimated to be at least 19 years.
State workers and teachers may be able to retire earlier than the anticipated 67 retirement age, the age to collect to Social Security. The revised plan creates an individualized formula for retirement ages between 59 and 67 years old that would reduce the new target age for those who have already worked longest.
The amendments do not include 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.
Although the town councillors felt there may be better options to resolving the state pension crisis, they support pension reform as necessary for South Kingstown. Their support for reform does not necessarily mean they support the proposed plan, but that they support it as the only plan available to reforming the system.
â€śThis isn't perfect, but it's the best we're going to do. I would like the town council to go on record supporting the amended pension act,â€ť Councilman Jim O'Neill said.
â€śLooking at the numbers without pension reform, we obviously have to be for pension reform,â€ť Councilwoman Kathleen Fogarty said. â€śI don't think anyone in the room is against pension reform. I'm glad to see the changes. Do I think it's fair? Not everyone will be happy.â€ť
Vice President Carol Hagan McEntee and Councilwoman Mary Eddy said she supported pension reform as amended.
â€śPension reform is a tough pill to swallow for many people, but it is to fix what ails us,â€ť McEntee said.
â€śOur town here can't afford close to $5 million without pension reform,â€ť President Ella Whaley said. â€śI believe this town council has gone over and above.â€ť
The town council's discussion follows the the Nov. 7 public workshop with the school committee and local state delegation on pension reform.
Alfred said he supports pension reform, but not necessarily the proposal put forth by the General Treasurer.
â€śI'm not sure the provisions within the existing act in relation to the MERS system provide what's necessary,â€ť Alfred said. â€śI think we're in a position where there could have been better reforms as far as the MERS is concerned, but the overall emphasis for the need for reform needs to be put forth.â€ť
Alfred said Monday that he doubts the proposed plan will be a one time fix as suggested by Raimondo.
â€śPension reform is necessary. Could it be different as far as changes to the MERS system? Yes, but it's not going to happen before Thursday,â€ť Alfred said.
At the Nov. 7 meeting before last Wednesday's amendments, Alfred stated without pension reform the town would have to pay $4.1 million for all retirement systems and contribute $9.1 million, which is about over 13 percent of the tax levy. Alfred said even if the town taxed the maximum tax levy of four percent, it would only yield $2.6 million, an excess of $1.5 million of what the tax cap is.
The town's current unfunded liability is $19.7 million with a funding ratio for the municipal system of 77.1 percent.
With pension reform, the funding ratio for the municipal pension system would be up to 90.5 percent. While the General Treasurerâ€™s proposal saves $3.1 billion statewide, for South Kingstown, it saves $12.7 million in unfunded liability, resulting in a reduction in contribution for employers. The town council voted to support a letter from the Town Administrator supporting the amended pension plan. Because the council did not include the decision on the initial agenda, they were not able to issue their own letter.