Director of Administration Richard Licht won’t like it, but the big headline out of Wednesday’s third meeting of the Chafee-Raimondo pension advisory group was undoubtedly actuary Joe Newton’s suggestion that the state may need to suspend cost-of-living increases for 15 years to get the pension system 80% funded.
“Wait, what are you doing?” a man called out from the back of the room after Newton showed a slide containing that idea.
True, that was just one piece of a proposal by Newton that would also re-amortize the state’s $7.3 billion unfunded pension liability over 25 years; reduce benefits not yet earned; and require taxpayers to continue making large annual deposits into the pension fund, among other things. But the COLA freeze was a dramatic demonstration of what painful choices Governor Chafee, Treasurer Raimondo and the General Assembly face over the next two months.
The advisory group has one meeting left – on Sept. 12 – and won’t be producing a final report or taking a vote on any specific recommendations. Here are some other highlights from today’s jam-packed meeting:
• The mood today seemed more tense than at the first two meetings. There were signs on trees outside East Providence’s Weaver Library that said: “Keep the promise. We did.” The room was full of attendees, many of them retirees, and there were a few outbursts despite a ban on comments or questions from the public. Council 94’s Mike Downey expressed disappointment that the voices of average state workers haven’t been heard much.
• An asset infusion, a preferred policy of NEARI’s Bob Walsh, looks less likely after First Southwest banker Maureen Gurghigian poured cold water on the idea of giving the pension fund T.F. Green Airport, the Lottery, the Convention Center or Twin River. Walsh told me after the meeting the one idea that survives is the potential of pledging the state’s future income from an expanded Twin River to the pension fund instead of the budget.
• A hybrid plan, which would combine a limited defined-benefit pension with a 401(k)-style defined-contribution account, was discussed by BC’s Alicia Munnell. She suggested a “stacked” plan, which would guarantee a pension benefit of up to $50,000 but switch to a defined-contribution for income above that. She said both are needed because individuals are bad at managing 401(k)-type accounts; Cranston Mayor Allan Fung responded that governments are bad at funding pension plans adequately.
• The value of a pension is significant, Newton’s presentation showed. Under the current system, for a 36-year-old new hire starting out at $34,000 a year, about $284,536 will be contributed to the pension fund on his behalf (out of his own paycheck and by the state). If he retires at age 65, he could get $2 million out of the fund.
• Not everyone in state government wants a pension. HR reps have told the group the option isn’t particularly appetizing to IT professionals and attorneys, which makes it harder to recruit them. If they worked for the state for eight years, all they’d get at the end of that time is an interest-free check for their pension contributions, since they’re not eligible for one.
• Massachusetts’ cost-of-living adjustments are much less generous than Rhode Island’s. The Bay State indexes only the first $12,000 of a pension to inflation and caps the annual increase at $360. For newer pensions, Rhode Island indexes the first $35,000 of a pension based on the CPI and caps it at 3%.
• Locally-run pension plans like Providence’s and Coventry’s are a real concern and seem unlikely to be addressed comprehensively by this group. But former Auditor General Ernest Almonte characterized them as a ticking time bomb that must be dealt with to avoid more situations like Central Falls. He said no local pension plan should be more generous than the state’s, and they should all be run out of the treasurer’s office (as many already are). But what to do about the huge funding shortfalls those plans have already built up?
• Richard Licht, Governor Chafee’s director of administration and a panel member, is very engaged in the discussions and clearly listening closely. The governor will probably pay close attention to Licht as he weighs what changes to propose, just as Treasurer Raimondo is likely to listen to Deputy Treasurer Mark Dingley. But aides say the two elected officials will make the final calls about what to include in their draft legislation.
• There is one thing the governor, the treasurer, the House speaker, the Senate president and every member of the General Assembly all agree on when it comes to pension reform, Licht said: “They don’t want to be discussing this again.”
More pension coverage on Nesi’s Notes:
- Can RI officials fix the pension problem before Halloween? (Aug. 1)
- Rhode Island’s problem isn’t ‘free’ pensions, it’s hidden ones (July 14)
- Pension group must help RI atone for the sins of the past (June 28)
- Where’s the bump? How RI’s pension system has changed (June 2)
- Could this be the year for a grand compromise on pensions? (May 23)
(photo: Ted Nesi/WPRI)
An earlier version of this post gave an incorrect title for Deputy Treasurer Mark Dingley.