State lawmakers learned Wednesday that, despite hours of discussion and deliberation by an 12-member pension advisory group, there is no clear-cut path to solving Rhode Island's failing pension system.
House and Senate finance committees convened for the third and final joint hearing on the state's troubled pension system. General Assembly Fiscal Advisers Sharon Ferland and Peter Marino spent most of the meeting presenting the findings of the group established this year by Gov. Lincoln Chafee '75 P'14 and General Treasurer Gina Raimondo.
The advisory group — composed of representatives for labor, business, government administrators and others — was designed to be a "sounding board" for ideas to reform the pension system. It was never intended to produce official recommendations for lawmakers, Marino said. Rather, it will release a summary of its findings from four separate meetings.
Marino said advisory group members considered questions submitted online by state residents when formulating their ideas, but they did not hear public testimony at any of the four hearings. The goal for the advisory group and state lawmakers implementing pension changes is to reach an 80 percent funded ratio, the baseline figure for a "healthy" pension system, according to Ferland. The funding ratio for fiscal year 2013 is currently 48.4 percent. Setting the pension system on a sustainable course and ensuring that the system is affordable to taxpayers and provides for pensioners are the most important principles when implementing these changes, Ferland said. "Striking that balance is going to be difficult," she said.
The advisory group considered changing the state system to a hybrid pension plan, which combines elements of defined benefit and defined contribution plans, along with Social Security, which can replace more than 30 percent of a retiree's income. But the hybrid plan would not satisfy the retirement needs of half the state teachers and many public safety employees who do not participate in Social Security, Ferland said.
The proposed hybrid plan would raise the eligibility age for a full pension by up to two additional years, currently 62 for 29 years of service and 65 for 10 years of service. It would also introduce a defined contribution payment of 5.75 percent and reduce the cost-of-living adjustment. Ferland said senior employees will be best positioned under the proposed changes, but all potentially affected groups will "share the burden" financially.
The advisory group also proposed a 25-year re-amortization of the state's pension system — a change that would reduce the unfunded liability and employer costs in the short term. The group made no attempt to calculate the long-term costs of re-amortization, Ferland said.
Municipal pensions, including police and fire plans, received minimal attention from the advisory group. These 36 pension plans have a combined $2.1 billion unfunded liability — less than half of the state system's roughly $7 billion unfunded liability.
"I have to say, we did not spend a great deal of time on this," Ferland said, prompting criticism from joint-committee members.
"I don't think we've placed enough emphasis on the local plans and how important they are," said Rep. Daniel Reilly, R-Middleton, Newport and Portsmouth. "If they're not brought into the solution, we're doing a great disservice to them."
Rep. Larry Valencia, D-Charlestown, Exeter and Richmond, agreed with Reilly. He added that the state should consider making more teachers and public officials eligible for Social Security. "I would love to see them opt in," he said.
There were "things that clearly didn't get tackled," Ferland said of the advisory group hearings. Despite suggesting that transitioning to a hybrid plan is the best solution, the advisory group fell short of reaching a consensus on many important issues, she said. "There's a lot of ground to cover."
