By Ted Nesi
PROVIDENCE, R.I. (WPRI) – Treasurer Gina Raimondo is warning state lawmakers they’re likely to be defeated in next year’s election if they vote against her pension overhaul plan as she calls on organized labor to drop its opposition to the proposal.
“If you don’t vote for pension reform you have to go to your constituents and explain why you voted for property tax increases, state income tax increases, a lack of funding for public education,” Raimondo told WPRI.com on Friday during a 40-minute interview in her first-floor Statehouse office. “That’s what will happen.”
Woonsocket City Council President John Ward, who also works as Lincoln’s finance director, warned at a forum Friday that “Lincoln will be extremely inconvenienced” but Woonsocket “will be devastated” if their pension costs soar because the Raimondo-Chafee bill doesn’t pass.
Raimondo cited Ward to back up her warning to lawmakers. “A legislator who votes against this has to explain to their constituents why they voted to devastate certain communities in Rhode Island,” she said, adding that she thinks the pension bill is “politically popular.”
‘They just don’t like this one’
Members of the General Assembly aren’t the only ones in the treasurer’s crosshairs. She also suggested labor leaders are being disingenuous with their rank and file.
“The unions have to be accountable,” Raimondo said. “Union leadership has to lead their members and be accountable to their members. … They have an obligation to embrace reform, because if they don’t then 30 years from now, when the thing is out of money, the next [generation] will be saying they’re angry the pension fund ran out of money, and who’s accountable?”
The treasurer argued labor leaders are trying to play both sides of the argument by, on the one hand, faulting state leaders for failing to manage the pension fund correctly while, on the other, accusing her of manufacturing a crisis by getting the Retirement Board to adopt new assumptions last April.
“The only people that voted against the move from 8.25% to 7.5% were the six union officials,” Raimondo said, referring to the lowering of the pension fund’s investment forecast. “When we marked to market during the boom, it was the union votes. And today you have union officials saying – their immediate reaction is, they’re going to sue.”
“They haven’t offered a good alternative,” she said. “They just don’t like this one.”
The National Education Association Rhode Island’s Robert Walsh disputes that, and has argued on WPRI 12 and in The Providence Journal in recent weeks that Raimondo could have structured her proposal differently and still saved significant money.
No deals with Sabitoni, Reed
Raimondo has her own ties to organized labor, but she said those have not influenced her decision-making.
Raimondo said she’s discussed her pension policies with Armand Sabitoni, general secretary-treasurer of the Laborers’ Union and its regional manager in New England, who served on her transition team.
Asked whether Sabitoni – whose union is the largest in Providence’s underfunded locally managed pension system – pushed her not to touch the plans outside the state-run Municipal Employees Retirement System (MERS), she said: “Oh, heavens no. I haven’t actually talked to him about non-MERS versus MERS. But I’ve talked to him and George [Nee] and Bob [Walsh] and all these guys the whole time about pension reform.”
Raimondo said she’s also discussed the issue with U.S. Sen. Jack Reed, her political mentor and childhood friend, as well as Reed’s brother Paul, president of the state firefighters union.
“I’ve talked in a more limited way to Senator Reed, and he’s basically said, ‘I have full confidence in you to solve this problem,'” she said. “Paul’s upset. I’ve known Paul forever; my mom used to babysit Paul. To be fair, I haven’t talked to him since I’ve launched the bill, but leading up to the bill his position has basically been: whatever you do, we’ll sue you.”
Raimondo also said she has not made fundraising calls for Engage Rhode Island, the deep-pocketed new advocacy group that’s buying print and broadcast advertisements to rally support for the legislation she and the governor submitted.
Hybrid mandatory but risks lower
Raimondo acknowledged the proposed hybrid plan in her bill still won’t allow younger workers to opt out of participating in the state pension program. “We need younger people to continue to pay into the system,” she said, or it won’t have enough money to cover the unfunded liability for retirees and older workers.
But the treasurer noted the share of an employee’s 8.75% paycheck contribution that currently goes into the pension fund would drop to 3.75% under the bill, with the rest going into an individual retirement account, a bit like a 401k.
“There’s all kinds of risk,” Raimondo said. “There’s investment risk, and the defined benefit is designed to protect the employee from investment risk. But there’s also political risk. … Some politician down the line can choose to change it to an 80 retirement age.”
“The amount of money that’s in [an employee’s] defined-contribution [account] isn’t subject to political risk – it’s subject to investment risk, but no one can touch it,” she said. “No politician can get their hands on it, ever. It’s theirs. And I think that’s appealing.”
Raimondo also said concerns about whether the state’s new investment return forecast of 7.5% is still too optimistic are misguided and fail to understand how the bill would minimize the risk that involves.
“It matters much less in the new system, because with the hybrid [plan] the rate of return is irrelevant,” she said. “Not only does this bill fix the problem for the budget for next year and the next year’s, but it’s a fundamental design shift and a risk shift. … Right now, the risk is all on the taxpayer, and this is putting a lot of the investment risk on the employee.”
In addition, the bill calls for cost-of-living adjustments (COLAs) to vary based on whether the state meets its investment goals going forward, with no COLA being granted when the fund earns 5.5% or less. “The COLA is automatically tied to the rate of return,” Raimondo said.
(photo: Ted Nesi/WPRI)