The price tags are steep, but so are the hopes of Rhode Island’s retired public employees − and current workers − for the potential pension relief spelled out in the long-awaited report that emerged Monday from a pension advisory group.
The report approved unanimously on Monday by the advisory group makes no specific recommendations on what, if anything, the legislature should do to “address any unintended consequences” of the 2011 law aimed at reining in the skyrocketing cost of public employee pensions.
But it lays out “options for consideration” ranging from restoration of annual COLAs for retirees to lower age/work requirements for current-day workers, and the potential cost of each one.
Some of the projected numbers in the final report are eye-popping.
They range $53.3 million to $75 million in Fiscal Year 2025 alone to reinstate the payment to Rhode Island’s retired public workers of 3% annual cost-of-living-adjustments aka COLAs, on top of the $544.3 million in state and local money already required.
Were state lawmakers to raise the current pensions of Rhode Island’s retired public employees, in one fell swoop, to where they would be now had there been no COLA suspension, the added cost to taxpayers would be $110.3 million in FY25 alone if limited to those who retired before July 1, 2012, and $169.2 million if it were done for all retirees.
The report states the obvious: “Any change – whether it is paid upfront, paid annually through general revenue, or paid from the trust itself – ultimately increases the share of the state budget allocated to funding the pension system under current funding rules.”
And it contains this caution: Any retreat from stablizing “reforms” of 2011 could impact the state’s credit rating which, in turn, could impact “the economic feasibility of future bond proposals to fund general infrastructure projects, housing development, school construction and other programs.”
Responding to the oft-stated suspicions of some angry retirees that what happened to their pensions in 2011 went well beyond what was needed, the report notes: “The General Assembly expressly found that Rhode Island’s pension system had reached an ’emergency stage’ … that endangered the pension security of public employees.”
It also contained this reminder about the circumstances that led to the dramatic 2011 pension overhaul: “Government contributions to the Employee Retirement System of Rhode Island had more than doubled between fiscal years 2005 and 2011” and were “estimated to double again in fiscal year 2013 to exceed over $600 million.”
A starting point for the lookback
More than a decade after the 2011 law took effect, “the state’s pension system is on more sound fiscal footing.”
The funded ratio − which measures money on hand against future pension obligations − “has increased [from] 48.4% to 62.8% … However, it is quite clear,” the report says, “that the reforms have had a negative financial impact on state employees and retirees” that has been exacerbated by “unusually high inflation rates.”
“Though some fiscal impact was expected to result from inflation, the degree to which inflation has diminished the value of pensioners’ annuity payments over time was not.”
As of June 30, 2023, there were 10,959 state employees and 13,554 teachers and 8,161 municipal and public-safety professionals in state-run pension plans.As of that same date, there were 11,328 former state employees, 11,595 former teachers, and 6,755 former municipal employees listed as retirees, pensioners, or beneficiaries. Of those, 18,710 retired before the July 1, 2012 effective date of the last round of pension changes.
Who wants what?
Retirees want the legislature to reinstate the payment of annual COLAs – no matter the cost.
The retirees are hoping that Rhode Island’s as-yet unknown share of a $350-million class-action settlement with Google in a data-privacy breach could smooth the way.
Many of these retirees worked in municipalities where neither they nor their employeers contributed to Social Security, including:
Barrington (teachers); Bristol (teachers and police); Burrillville (teachers, Harrisville and Pascoag fire);Central Falls (teachers, police and fire); Coventry (teachers and fire); Cranston (teachers, police, and fire); Cumberland (teachers and fire); East Greenwich (teachers and fire); East Providence (teachers); Foster-Glocester (teachers); Hopkinton (Hope Valley, Wyoming fire, Hopkinton police); Johnston (teachers).
Lincoln (teachers, Lime Rock fire); Little Compton (teachers); Middletown (teachers); Newport (teachers, police); North Smithfield (teachers, Union fire); Portsmouth (teachers); Scituate (teachers); Smithfield teachers); Tiverton (teachers); Warren (teachers); Westerly (teachers); West Greenwich (Hopkins Hill fire); Woonsocket (police and fire).
Anger from 2011 pension overhaul is still strong
In the meantime, the anger at what happened in 2011 – and continues to this day – persists among the state’s retired public employees.
“No money for a COLA? Way too expensive? Huge price tag? The governor found $132 million for a soccer stadium project,” wrote one retiree on the Facebook page of the coalition pushing for restoration of COLAs.
“If the pension fund wasn’t spending so much on investments fees, there would be enough to fund an annual cola, IMO,” she said of the fees, which totaled $126 million in Fiscal Year 2023, according to a state treasury report.
However, the retirees are competing with current employees for any available dollars.
Their advocates want the state to reinstate “longevity payments,” which equate to permanent – and not just one-time – increases in the paychecks of teachers and state employees as they hit milestones in their careers.
Before these automatic pay bumps were eliminated, teachers got a 5% increase in theirbase salaries after 10 years, and 10% after 20 years, according to a summary from the treasurer’s office. State employee longevity pay ranged from 5% after five years to 20% after 25 years, with a series of salary bumps along the way.
The leaders of Rhode Island’s public employee unions also want the state to lower the age and work requirements for a pension to make state and local employment more attractive, which would also come at a cost.
Other options listed by state’s pension advisory group
The pension advisory group weighing the options was appointed by state General Treasurer James Diossa in response to the call, contained within the current-year budget, for a fresh look at the “unintended consequences” of the cost-cutting pension moves championed by then-treasurer – and current U.S. commerce secretary – Gina Raimondo, which the General Assembly approved in 2011.
The report laid out some of the other options to reverse, or simply scale back, these earlier cost-saving moves, all of which would require legislative approval. Among them:
- Amend the final average salary formula from the highest five years of pay to the highest three years of pay for teachers and state and municipal employees. Projected cost in FY25 alone: $12.2 million.
- Increase the value of each year of work toward a pension from the current 1% of pay to 1.5%, as an example, at a projected annual cost of $45.7 million and much more if the “accrual rate” returns to what it was in the past, under rules that allowed a retiree to go out with 80% of his or her three-year salary average after 35 years of work.
- Decrease the retirement age from the “Rule of 95” – wherein an employee’s combined age and years of service must equal at least 95 before they are eligible to retire – to the “Rule of 90,” allowing a 60-year-old, for example, to retire after 30 years of work. Projected annual cost: $12.1 million.
- Lower the age-work requirements at which a police officer or firefighter can retire with a pension to 20 years and out at any age. Projected annual cost: $2.3 million. The current thresholds: age 55 after at least 25 years on the job; any age after at least 27 years; Social Security retirement after at least five years of work.
- Require that all school districts and municipalities that are not currently contributing to Social Security for their employees to do so for all new employees. (The Social Security tax rate for employers and employees is 7.65% of employee payroll (6.2% for Social Security, 1.45% for Medicare).
- Reduce the “early retirement” penalty. Projected annual cost: $8.5 million.
- Increase the employer, aka taxpayer, contributions to the state’s equivalent of a 401(k) retirement savings plan ($19.1 million).
Legislative reaction
The response so far is noncommittal.
Senate President Dominick J. Ruggerio thanked Diossa and the members of the working group for their “comprehensive review,” which he called “necessary prior to any responsible consideration of pension system modifications.”
He said the Senate Finance Committee will now review the options, keeping in mind the original goal: “To ensure that public employees and retirees can count on a secure and sustainable retirement system, goals that must remain paramount as we review any potential modifications.”
Similarly, House Speaker K. Joseph Shekarchi said: “This is a high-interest topic, and as expected this work will serve legislators and others as an important resource.“
