The Chafee-Raimondo pension advisory group dove deep into the weeds at the second of its five public meetings on Monday, with phrases like “average accruals,” “multipliers” and “final averaging periods” all getting thrown around in a Warwick Public Library conference room.
The discussion may have gotten mind-numbing at times, but don’t let that fool you – the consequences of what the group discussed would be dramatic. Just one example: if the state opted to keep its annual pension contribution at the same level as it is now going forward, pensions would need to be cut by 25% to 30% to get rid of the unfunded liability on the current schedule. That was just a hypothetical, but it illustrated the stakes.
The group’s next public meeting is Aug. 17, with an agenda of: “Scenario review, legal, financing, municipalities.” In the meantime, here are a few quick thoughts from today’s meeting:
• The National Education Association Rhode Island’s Bob Walsh and Cranston Mayor Allan Fung seemed to represent the two boundaries of opinion among the panel members. They clashed a few times, notably over the question of whether changes in private-sector retirement benefits should be a part of the discussion here.
Fung argued that the group needs to take into account the rise of 401(k)s and the fact that few taxpayers will receive anything like a government pension from their employers; Walsh countered that a decision to provide skimpier retirement benefits by private companies is no reason for the government to do the same. “Welcome to the private sector,” Fung said. “Not a good model,” Walsh shot back.
Later, Fung asked the state’s actuaries to run the numbers for switching entirely to a defined-contribution plan.
• Speaking of Walsh, retirees and current workers have a powerful advocate by having him on the panel. He knows these issues backwards and forwards, and jumped in regularly to take issue with points made by others. He’s also one of two panelists assigned to look at alternative financing sources for the pension plan – which could include borrowing, reamortization, or transferring the Lottery or Twin River to the pension fund.
• Richard Licht, Chafee’s director of administration, is relentlessly practical, always seeking to bring the discussion back to ground level. “If we didn’t have an unfunded liability and we were starting all over again, we wouldn’t be here,” he reminded the others after a lengthy discussion about the cost of current employees’ pensions.
• Simplicity masking complexity? For all the confusing terms thrown around today, actuary Joe Newton offered a reminder of how simple the state’s problem is when he put an equation up on the screen:
C + I = B
… meaning Contributions to the pension fund (from workers and taxpayers) + Investment returns = Benefits.
• The broader question of “retirement security” continues to be a flash point. The meeting started with a debate over how much of a retiree’s income a pension should replace, which led to a discussion of whether Americans in general can be expected to save enough money to supplement the pension. Others said it wasn’t this group’s responsibility to solve a more general U.S. retirement-financing crisis.
• A key theme for Raimondo since she kicked off this debate has been the question of priorities, and the way high pension costs crowd out spending on other government priorities. That’s why she said she unveiled her “Truth in Numbers” report at the homeless shelter Crossroads Rhode Island, “and that’s why we’re meeting in this public library,” she said Monday. Fung warned there would be “an uproar and a riot” if he has to raise taxes or cut services to the extent required by the new pension contribution estimates.
• A significant amount of the pension panel’s work is happening behind the scenes. RISD Professor Bill Foulkes, who’s leading the group, referenced the results of an informal survey he conducted among the members to discuss their thoughts about retirement security. Conference calls and other communication is also happening outside these meetings.