(February 18, 2014) — Rhode Island state officials and unions have come to an agreement on the state’s pension reform, resolving six lawsuits with a moderated version of the reform law of 2011.
“The settlement agreement marks an important first step forward, and the beginning of a process that will benefit all Rhode Islanders,” Governor Lincoln Chafee and Treasurer Gina Raimondo said in a joint statement. “It is a proposal that we all support and jointly offer to the General Assembly, members of the retirement system, and to the public.”
The move on Friday, February 14 was the result of months of court-order mediations and should save about $4 billion over 20 years, according to the Treasurer’s office. It would also mollify and revert some big changes made in the 2011 law that were originally intended to cut the state’s unfunded pension liability from $7 billion to $4 billion.
“This settlement agreement retains structural elements of the Rhode Island Retirement Security Act of 2011, including the move to a combined defined benefit (DB) and defined contribution plan, an increased retirement age, and a cost-of-living adjustment (COLA) suspension until the system is at a stronger funding level,” the joint statement said.
The new arrangement would lower the retirement age for current employees back to 65 from 67 and restore DB plans with a 2% annual accrual with higher employee contribution rates to workers with 20 or more years of service.
The COLA would remain suspended until the $8 billion pension plan is 80% funded, with occasional COLAs issued every four years, instead of five years. Employer contributions to DB plans of employees with 10 to 20 years of service will rise up to 1.5% from 1%.
“It’s the right thing to do,” Treasurer Raimondo said. “It’s a practical solution. Nothing’s perfect, but it’s a practical solution.”
Annual state contributions to the pension system would increase to $510 million from $486 million under the new agreement.
According to the state investment commission, the fund gained 9.73% in the fiscal year ending December 31, 2013. The state’s pension system was 58.2% funded and had an unfunded actual accrued liability of $4.5 billion as of 2012, according to Morningstar.
“Crucially, this proposal does more than end the risks associated with a costly and protracted litigation,” the joint statement said. “This settlement proposal would resolve six pending lawsuits contesting changes made in 2009, 2010, and 2011. It also demonstrates that our small state can lead the rest of the nation and come together to solve big problems.”
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