Chafee Pension Proposal More Severe than Caprio’s
Wednesday, October 19, 2011
Governor Chafee won last year’s election with the overwhelming support of organized labor across the state, but the pension reform proposal introduced Tuesday is actually more painful for union members than the plan former Democratic candidate Frank Caprio offered during the campaign, according to one of Chafee’s top supporters.
Under the Rhode Island Retirement Security Act of 2011 proposed by Chafee and General Treasurer Gina Raimondo, cost-of-living adjustments (COLAs) for most state employees would likely be frozen for 19 years and would be guaranteed only when the pension system was funded at 80 percent and all state employees would be enrolled in a hybrid plan that would come with a smaller guaranteed benefit.
By comparison, the plan offered by Caprio, who was strongly opposed by organized labor last year, did not touch COLAs and would have required a five percent contribution by state employees that would have been matched by a five percent contribution by the state.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST“I’ve been saying this, Caprio’s plan was not as bad as this one,” National Education Association of Rhode Island Executive Director Bob Walsh said.
We Like Candidate Chafee’s Plan Better
Walsh, who campaigned for Chafee and served on his transition team, has been critical of the Governor in recent weeks, pleading with him to keep promises he made to labor unions. He said his goal during the General Assembly’s special session will be to alter much of the proposed legislation and that “the rest will wind up in court.”
Walsh also pointed out that while Chafee has said he never made any promises to labor unions regarding pensions, “I can assure you we received promises in writing.”
He said the plan proposed by Chafee and Raimondo is damaging to active employees, who have the majority of the risk associated with a 401k-style plan shifted toward them. He said the plan is not what he was expecting when he supported the Governor last year.
“We like Candidate Chafee’s plan much better than Governor Chafee’s plan,” Walsh said.
Chafee: I Have Advocated For a Hybrid Plan
During the campaign, Chafee did say he supported moving toward a hybrid plan for union members, but he mostly focused on new hires. The new plan affects current employees and the freeze in COLAs is likely to infuriate retirees. But Chafee said he has always favored system similar to that of the federal government.
“Current employees will retain whatever accrued benefits they have earned, but will move into a hybrid system with a defined contribution component, similar to what the federal government has had since 1983,” Chafee said. “I have long advocated for a hybrid plan that will help minimize taxpayer risk and will allow employees some flexibility in how they would like their contributions invested. I have strongly urged the adoption of a hybrid retirement system, and even campaigned on it, because I had this benefit as a U.S. Senator and Federal employee.”
Raimondo said the proposal will strengthen the pension system and put it on a track to being well-funded.
“The legislation we propose today will strengthen and modernize the retirement system to ensure that retirement benefits earned are there for our hard working employees,” Raimondo said. “It will create a system that is affordable, sustainable and secure for retirees, employees and taxpayers.”
The Right Plan
Supporters of the plan believe the state had no other choice but to address the pension system by making difficult decisions. The plan will lift the burden on taxpayers and would immediately reduce the state’s unfunded pension liability by $3 billion.
According to Graton H. “Cap” Wiley, a managing director at CBIZ Tofias, the key will be making sure the General Assembly members have the strength to make the pension system more sustainable.
“The whole country is looking at how Rhode Island will deal with an unsustainable public sector pension system that is overly generous in its benefits and woefully underfunded in its operations,” he said. “I sincerely hope that our political leaders have the strength and commitment to make the difficult decisions that need to be made to bring the pension and benefits system under control and sustainable for future generations. General Treasurer Raimondo has put forth a well thought out plan to accomplish these goals and it should be passed overwhelmingly by the General Assembly.”
John Gregory, President of the Northern Rhode Island Chamber of Commerce, agreed with Wiley. He said businesses can no long afford the tax increases that have been forced upon the state thanks to its unfunded liability.
“Now is the time to pass comprehensive pension reform. Our businesses cannot afford additional tax increases,” Gregory said. This legislation will provide needed relief for municipalities and taxpayers while providing fundamental system re-design. It is especially encouraging that re-amortization was not the first option, but rather a thoughtful component to the final package that puts our state on sound financial ground.”
Former Gubernatorial Candidate Praises Plan
Under Caprio’s proposal, existing retirees would not have been affected and existing and future public employees would have received more of a guarantee from the state. But both Chafee and Raimondo emphasized that the plan rolled out Tuesday is a result of ten months of work that has factored in nearly every scenario to create a sustainable answer to the pension system.
Ken Block, founder of Rhode Island Moderate Party and another former gubernatorial candidate praised the plan.
“I applaud the consensus pension reform bill arrived at by Governor Chafee and Treasurer Raimondo. Passage of a bill that comprehensively addresses Rhode Island’s pension crisis will be an historic accomplishment which can very likely lead to a Rhode Island renaissance,” he said. “Particular praise must be sent towards Treasurer Raimondo for her hard work in highlighting the pension problem and pushing for a workable solution, and also to Governor Chafee, who has insisted that municipal pension reform be addressed as part of a comprehensive solution.
Block said it’s now up to state lawmakers to fix a problem that many have seen coming for decades.
“This bill shows that government can work for the greater good of the many,” he said. “I look forward to our elected leaders in the General Assembly following through on the good work done so far and passing this legislation to fix a problem that has been many decades in the making, and, which left unaddressed, will continue to hold our state economy hostage.”
A Historic Opportunity
Meanwhile, Raimondo didn’t mix words about the importance of the legislation. She called for the sweeping reforms to be passed and pleaded with state lawmakers to not “water down” the proposal.
“This is a historic opportunity for our state,” she said. “Failing to act is not an option. But action will take courage, and require us to put solutions ahead of politics and put the longer term view ahead of shortcuts.”
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