Let’s say the State of Rhode Island was founded today: June 28, 2011. And let’s say we decided to start up a pension system so the new state’s workers would receive checks once they retire. The state could probably afford to offer the same pension benefits it already does right now without a problem.
Trouble is, Rhode Island was not founded today. The state’s pension system was created in 1936, and the real challenge facing the pension advisory group that first met yesterday is dealing with the cost of 79 years of promises already made.
That point was made over and over during yesterday’s meeting. Rhode Island has a particularly “mature” pension system, actuaries have told Raimondo – it currently has a lot more retirees collecting than workers paying in. Pension benefits for new hires have been thoroughly overhauled in recent years, but Raimondo keeps emphasizing that future changes won’t do enough to bring down the system’s $7 billion unfunded liability.
It wasn’t just the treasurer who said that, either; the National Education Association’s Bob Walsh, who served on the last two pension commissions in Rhode Island and knows the issue’s intricacies as well as anybody, kept reminding his fellow panelists that the system as currently structured for new hires is affordable.
It was hard not to hear those comments as an effort to lay the groundwork for cutting retirees’ pensions; current workers can only be asked to contribute so much to fund the more generous benefits of the past, which they will never receive but which weren’t paid for at the time.
How big a cut could be coming? One indication of what Treasury staffers are thinking was buried in this chart shown yesterday, which has six metrics they came up with to look at the pension system’s health – notice the last metric, “Retiree contribution,” which is currently 0% and for the sake of argument could max out at 10%:
Correction: An earlier version of this post said Rhode Island’s pension system was established in 1932.