Chafee Broke Pension Promises to Public Employees

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Monday, November 07, 2011

Dan McGowan, GoLocalProv News Editor

As he squared off with Democrat Frank Caprio, Republican John Robitaille and Moderate Party founder Ken Block during last year’s race for Governor, Lincoln Chafee earned the support of public employee unions by claiming his pension reform plan would focus on new and young employees and he claimed that any plan that would affect vested employees would not “meet the legal test” in court.

But now top union officials say the Governor has gone back on his word by supporting a complete overhaul of the system that will raise the retirement age, freeze cost-of-living adjustments for up to 19 years and move all public employees to a 401k-style hybrid plan.

The plan, which is backed by General Treasurer Gina Raimondo and the majority of leadership within both chambers of the General Assembly, is a far cry from the one Chafee proposed as a candidate and is unlikely to solve the local pension problems many municipalities are facing – another key component to his original vision for reform.

“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 last month. “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.”

Chafee Plan Had Minimal Impact on Existing Employees

While Chafee’s plan during the campaign did say he supported moving toward a hybrid plan for union members, he focused almost exclusively on new hires.

“The proposal moderately changes benefits for active non-vested employees (10 years or less employment) and substantially changes the benefits for new employees,” the proposal, which is still posted on Chafee’s campaign website, said. “The only change for vested employees would be a change in the disability rules which has already been enacted for state employees and teachers.”

But if the current proposal passes as is, every employee is likely to be affected along with retirees, who aren’t likely to see a raise in their pension payouts for at least a decade. Treasurer Raimondo claims the plan will reduce the state’s unfunded pension liability by more than $3 billion right away and would put the pension system on track to being fully funded by 2042. She said the plan would also keep taxpayer contributions to the system at about almost $300 million and save taxpayers nearly $3 billion over ten years.

Union Heads: We Can’t Support this Plan

According to his campaign website, Chafee also pledged to reamortize the current pension obligation to reflect the effect of the recession and the continued unrealistic return assumptions that have been made by the state; create a hybrid system for new teachers and state employees as well as non-vested employees; and develop a long term plan to coordinate the retirement age to social security eligibility.

He also made it clear that going after vested employees would likely be reversed in court, which is exactly what union officials are hoping for if the legislation passes in its current form.

During public hearings last month, Philip Keefe of the AFL-CIO said the plan disproportionately affects those who can least afford to have their already small pensions altered.

“I can't ethically or morally support pension changes that are not inclusive and I would urge this panel to closely look at that,” Keefe said. “I think that's a serious issue. I think it's an issue of elitism. I think it's divisive.”

Keefe also suggested that while he understands changes need to be made, the current pension system isn’t on the brink of collapse.

“This is not a crisis. This has been ramped up as a crisis,” he said. “This is a problem and a serious problem. [But] we have $7.7 billion still in the pension fund. This is not going to collapse tomorrow.”

J. Michael Downey, president of AFSCME Council 94, agreed with Keefe. He said his union members have always been willing to participate in pension reform, but the current proposal goes too far.

"Public employees that I represent have already shared and sacrificed all they can afford to,” Downey said.

NEA Let Down by Governor

Downey and Keefe aren’t the only union officials that have come out against the current proposal. On the day the legislation was introduced last month, National Education Association of Rhode Island (NEARI) Executive Director noted that Caprio, whom the public unions railed against on the campaign trail, actually offered a friendlier proposal than the one now supported by Chafee.

Walsh also said “I can assure you we received promises in writing” from Chafee in exchange for supporting him at the time. It is believed those promises came during a survey given to some of the gubernatorial candidates by the NEA last year.

Walsh 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 told GoLocalProv in October.

NEARI President Larry Purtill said the plan will be damaging to his members.

"By having their pensions reduced, waiting 19 years for a COLA and no social security, many will be left with a minimum retirement,” he said.”

Business Sector: Reform Must Happen

But others say reality is more important than any promises Chafee may have made. Those in the business sector say without reform, taxes will continue to skyrocket, making the state unattractive to new businesses and unaffordable for current residents.

BankRI CEO Merrill Sherman said a failure to act will have a negative impact on the state. She said the pension plan will restore business confidence and predictably for Rhode Island.

“For too long we have not dealt with the mathematical and economic realities we are facing,” Sherman said.

Even Block, who constantly criticized his opponent on the campaign trail last year, support the proposal. During his public testimony last month, he said if the pension plan isn't fixed, businesses will not want to come to Rhode Island.

"It is not necessarily ‘do this one thing and they will come,’” Block said. “This is one step among several that has to happen to turn around the environment that we're in right now."

 

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