A 15-year freeze on COLAs and other pension panel tidbits

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:

(photo: Ted Nesi/WPRI)

An earlier version of this post gave an incorrect title for Deputy Treasurer Mark Dingley.

7 thoughts on “A 15-year freeze on COLAs and other pension panel tidbits

  1. At the end of this process, our bought and paid for general assembly will cave into their union masters, not reform anything and keep raising our taxes.

  2. • 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%.

    True enough! But they DON’T tax government pensions or social security like Rhode Island does.

  3. As a retired police officer, forced to out due to an on the job injury, it is disgusting that the “so called powers to be” continually try to take away what little is left to the people who put their time in, and lives on the line. I haven’t been “afforded” anything, my pension is worth a total of roughly $36,000 per year, which I earned through service, not “bought or paid for” as implied by cowards like Cosmo whom hide behind a computer name. It is the same type of people, the ones who never risked anything but continually try to bash those whom took a professional career path, always comnplaining. A news flash everyone, we all pay taxes, my property tax just went up over $1,000 due to the economic issues, NOT because of pension payments. It comes down to this, a promise was made, I paid my dues in service time and money, the state of RI has a moral and legal obligation to hold up its end of the bargain, period…

  4. Ted
    Can you kindly explain what “suspend the Cola means”? Does it refer only to future increases, or subtracting what has already been earned in the past due to the Cola from one’s benefit?

    Thank you
    Sleepless in ri

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