Rhode Island’s unfunded pension liability has taken a wild ride over the last few years. Take a look:
It started when Treasurer Gina Raimondo convinced the State Retirement Board to change the underlying assumptions used to estimate the liability – most notably by reducing the long-term forecast of its investment earnings from 8.25% a year to 7.5% a year, as well as by changing the mortality tables for retirees.
Those changes, approved in April 2011, raised the state’s unfunded pension liability (dated back to June 30, 2010) from $5.4 billion to $7.3 billion in one fell swoop. It also set in motion what could have become a major budget crisis for the state and its municipalities due to the higher contributions now required to close the gap.
That looming spike in taxpayer contributions was the driving factor that convinced lawmakers to vote in November 2011 to approve the sweeping pension overhaul largely designed by Raimondo and her staff, which reduced the unfunded liability below its level prior to the April 2011 Retirement Board vote.
As of June 2013, now that more of the impact of the 2007-09 market crash has been factored into the estimate, Rhode Island’s unfunded pension liability without Raimondo’s 2011 changes would have been $8.9 billion (or $1.65 billion more than it was when the General Assembly approved the overhaul). The adoption of those changes reduced the unfunded pension liability by 46%, to $4.8 billion.
Last week Raimondo, Governor Chafee and union leaders unveiled a proposed settlement that would end organized labor’s legal challenge to the 2011 pension law as well as other changes made in 2009 and 2010; in exchange, the state would sweeten benefits at a cost of $232 million to the unfunded liability, swelling the shortfall to $5.05 billion. Lawmakers will have to decide whether the benefits are worth that cost.
(The chart above does not include estimates of the comparatively small unfunded pension liabilities for state police and judges, because officials haven’t made those numbers available yet.)
• Related: Chart: Comparing Raimondo, Fung and Taveras on pensions (Feb. 18)