Calling the state's underfunded pension system a "death spiral," General Treasurer Gina Raimondo told state senators Monday that urgent action is needed to address the growing gap between the state's assets and its commitments to retiring public sector workers.
Raimondo led an informational meeting Monday afternoon on the state's jeopardized pension system. In coming weeks, the finance committees of the Rhode Island Senate and House will hold three joint hearings on the issue, likely followed by a special session of the General Assembly dedicated to considering pension reform legislation.
State and local governments face a $9.4 billion unfunded pension liability, which includes the roughly $7 billion liability of the state-run system.
Representatives from the Rhode Island Retirement Security Coalition — a public employee union advocacy group — greeted attendees with leaflets titled, "Real People, Real Consequences." The pamphlets contained testimonials from state employees concerned about the possibility of reduced pension benefits. Coalition members also attended the final meeting of the pension advisory group Monday morning. The group — which is charged with advising Raimondo and Gov. Lincoln Chafee '75 P'14 on possible solutions to the state's pension crisis — made no specific recommendations following the meeting.
The afternoon caucus addressed the current status of pensions in Rhode Island, as well as the various benefits and consequences of implementing changes. "I think it's fair to say that none of us wants to be here right now," Raimondo said.
She said the goal for lawmakers is to come up with a reform plan that gives public sector workers retirement security while balancing the interests of active public workers, whose benefits are more vulnerable to changes by policy-makers, and retirees.
"We don't want to be back here again," she said.
Taxpayer contributions to the pension system have doubled since 2003, approaching $1.3 billion in the last fiscal year. "This is unsustainable," Raimondo said.
Without reform, sustaining the pension system would divert funds from other state services and send a message that Rhode Island is not good for business, she said.
Following Raimondo's remarks, Joe Newton, a senior consulting actuary for Gabriel Roeder Smith & Co. specializing in public sector pensions and benefits, presented data on possible reform options.
"There are only three levers you can pull," Newton said. In order to close the gap between its current assets and its commitments to pensioners, the state could increase taxpayer contributions to the pension system, reduce the cost of the benefits the system pays out or increase the system's investment earnings — a tall order in volatile economic times. Continuing without reform would lead to decreased benefits, salaries and services, as pension contributions drain resources from other areas of the state budget, he said.
One possibility is to reduce or suspend cost-of-living adjustments, inflation-indexed increases in retiree benefits. A five-year suspension of these benefit increases could dramatically reduce costs, though the idea is very unpopular among public sector employees, Newton said.
Re-amortization, which would extend the time Rhode Island has to fund its pension liability while increasing the system's total cost, is also under consideration. "Re-amortization needs to be part of the solution, but not the only one," Newton said.
Raimondo described Rhode Island's pension problems as uniquely difficult compared to other states. "We have a relatively old population," Raimondo said. There are slightly more retirees than current employees in the pension system. The failure of contributions by active employees to keep pace with benefits paid out to retirees is causing the system to "bleed cash," she said.
Raimondo predicted that a comprehensive reform package would be ready by October.
