Judge approves sweeping RI pension settlement

Only step left before $4B agreement becomes official is passage by state lawmakers

R.I. Superior Court Judge Sarah Taft-Carter in court in March 2015.

PROVIDENCE, R.I. (WPRI) – R.I. Superior Court Associate Justice Sarah Taft-Carter granted final judicial approval Tuesday to a sweeping settlement that would end nearly all the legal challenges to Rhode Island’s 2011 pension overhaul, which saved taxpayers roughly $4 billion.

The judge’s decision to green light the pension deal, which was expected, means there is only one step left before the settlement takes effect: approval by state lawmakers, who are expected to include the terms of the deal in the state budget agreement that will be released later Tuesday.

In her 68-page decision, Taft-Carter said her “thorough and independent review” of the settlement showed it to be “fair, reasonable and equitable.” She made the ruling following a multi-day “fairness hearing” last month where lawyers on both sides urged approval but some retirees and workers expressed opposition.

“The 2015 Settlement Agreement is not being offered as a perfect solution, nor is perfection required of it under the law,” Taft-Carter wrote. “Our Supreme Court has consistently recognized the desirability of a settlement when possible.”

Gov. Gina Raimondo, who was the architect of the original pension law as treasurer, hailed Taft-Carter’s ruling.

“Today’s decision approving the pension settlement is another important step toward providing certainty for our public employees and our cities and towns,” Raimondo said in a statement. “This settlement is in the best long-term interests of all Rhode Islanders and will keep our state on a path toward financial stability, economic growth, and job creation.”

The original landmark pension legislation instantly improved the funding level of Rhode Island’s pension system for state workers from 42% to 56% and lowered the annual state contribution to the fund by hundreds of millions of dollars a year. But unions argued the changes were unconstitutional and filed suit in 2012 to overturn the law.

The settlement approved by the judge Tuesday would end almost all of the litigation over the law. Under the terms of the agreement, some of the nearly 60,000 retirees and workers impacted by the pension overhaul would receive small increases in their benefits in exchange for dropping the suit.

One significant change is a tweak to cost-of-living adjustments (COLAs). If the settlement is approved, COLAs would be awarded every fourth year until a pension fund reaches an 80% funding level, and would be calculated with a new formula based on both inflation and the pension fund’s investment returns. The COLA would be calculated on up to $30,000 in benefits, rather than $25,000, and indexed to inflation.

In addition, retirees will get two one-time stipend payments of $500, one this year and one next year.

Retirement ages for most workers would also change with the adoption of a new “rule of 95,” meaning workers could retire when their age and their years of service add up to 95, or at the age allowed under the 2011 pension law, whichever is earlier. Workers with 20 or more years of service as of June 2012 would be returned to a full defined-benefit pension plan, but will have to contribute more to get it.

Individual workers and retirees are not allowed to opt out of the settlement and pursue separate litigation if it gets approved for their class of employees. The judge’s role in a settlement is to serve “as a guardian of the absent class members who will be bound by the settlement,” Taft-Carter wrote in her decision.

The deal is not binding, however, on three groups that have not agreed to settle: active police officers in the state-run pension system, and the police and fire unions in Cranston. While it’s possible they could eventually decide to join the settlement, for now their case is continuing to proceed to trial. A court spokesman said motions in their cases have been docketed for July 29.

Those three groups only account for about 733 workers, however, compared with the roughly 58,901 in the groups that agreed to settle, according to former R.I. Supreme Court Chief Justice Frank Williams, who is serving as a special master in the case and successfully led the new push to end the litigation through an agreement.

Taft-Carter, a 2010 appointee of former Gov. Don Carcieri, has been handling the legal challenge to the pension law since it was filed in June 2012.

This marked the second high-profile attempt to settle the pension litigation, following an aborted effort last year that ended when a small group of police officers rejected the proposal. The new settlement contains many of the same terms as last year’s, but makes some changes that union leaders described as a win for workers and retirees.

In addition to the 2011 pension overhaul, the settlement would also end legal challenges against two less expansive rounds of pension changes made by lawmakers in 2009 and 2010.

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

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