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Rhode Island Pension Reform Showdown - Who Will Prevail?

Tuesday, April 15, 2014

 

With a September trial date for Rhode Island's pension reform lawsuit looming just months away following failed mediation efforts, GoLocal talked with leaders in the state for their views on what now is the best case -- or worst case -- scenario.

Following last week's "no" vote by 254 police union members -- 1% of the eligible voters -- that sunk the mediated settlement unveiled in February, the contested 2011 change in law to the state's pension system will now go to court.

"As for it being carefully crafted settlement -- it was carefully rejected," said former SEC lawyer and Forbes columnist Ted Siedle, who last fall unveiled his criticism of state's pension system in his "License to Steal" report.   "You can't complain in that case. They should go back to the drawing board.  There should be no settlement with secrecy."

Siedle continued, ""If [Raimondo] still refuses the public access to hedge fund documents, the workers would be idiots that their benefits are conditioned upon secret investments they're not allowed to see."

While Governor Lincoln Chafee and General Treasurer Gina Raimondo released a joint statement following the latest development last week, Chafee's Deputy Director of Communications Deb Rich said the Governor remained optimistic.

"Governor Chafee says the best case there a resolution before trial," said Rich. "The worst is an adverse ruling by the court. The dialogue now is to secure a retirement for our hardworking state employees that’s affordable to our equally hardworking taxpayers."

Looking Ahead

Ray Sullivan, who is the spokesperson for the plaintiffs group, noted that the process will move forward with the current assembly of legal teams who have been involved in the efforts to date.

"The trial will be presided by Judge [Taft-Carter], and will still be the same lawyers," said Sullivan. "We've always maintained the fundamental strengths of the plaintiffs legal argument, and now we're continuing to take the necessary steps."

The mediated settlement, which was announced in February, would have offered retirees a $500 COLA increase and some addition benefits for workers and retirees while maintaining 94% of the original law’s $4 billion savings.

Former Director of Administration Gary Sasse said that the move to the courts was in the best interest of the state.

"The mediated pension settlement represented risk avoidance for both management and labor. However, the Governor and General Treasurer have indicated that the state was in a strong legal position. Therefore as the pension settlement would have raised pension costs by almost $25 million for state and local governments, increasing the unfunded liability by over $230 million, it might be worth the risk of having the court decide the case it merits," said Sasse.  

Sasse continued, "Furthermore it is unclear if a mediated settlement would set a precedent that the since there was a negotiated agreement state employees indeed do have an implied contract.  For these reasons and to resolve the matter once and for all it might be worth the gamble of having the court rule."

Political Implications

Republican gubernatorial candidates Ken Block and Cranston Mayor Allan Fung have both been vocal in their opposition to a settlement. 

"As I have stated since day one, I did not support the secretly negotiated settlement because it added a higher burden on the backs of the local taxpayers of Rhode Island. When so many cities and towns are still facing difficult fiscal conditions, Governor Chafee and Treasurer Raimondo's proposed settlement effectively would have resulted in higher property taxes for the residents of Rhode Island and added a quarter of a billion dollars to our unfunded liability. The entire process was seriously flawed," said Fung.

Block said, "The worst case scenario would be the courts overturning the pension reform, thus costing Rhode Island taxpayers billions of dollars.  The best case scenario is for the Rhode Island courts to find that the pension was legal and constitutional, as we were told from the beginning. This would preserve all the original savings,"

The issue of numbers -- and Raimondo's "Truth in Numbers" report, which served as the basis the landmark pension reform legislation in 2011, was at the crux of Siedle's arguments. 

"The lesson of the failed settlement agreement is there shouldn't be mediation with a liar. That, bluntly, is it," said Siedle. "The truth in numbers report was a lie.   By the time of the settlement vote, there was deep suspicion as to the numbers, and a profound sense that people are being hoodwinked into agreeing to a bad deal, and that [Raimondo] hadn't been honest about how those hedge fund fees would skyrocket."

Recently, Siedle took to Twitter to challenge the information recently released on the Treasury Department's homepage regarding fees . On April 9, Siedle Tweeted, "Rhode Island pension total expense ratio 95 bpts, says @GinaForRI! No COLA for you -  Wall Street needs bonus $."

Interest Groups

"It appears at the moment that the matter will be settled in the courts, as it should be. The soundness of the 2011 pension reform law needs to be determined based upon its constitutionality, not by a mediated settlement reached by third parties," said Monique Chartier with RI Taxpayers.

Chartier continued, "The best scenario is that the law will ultimately be upheld. The worst case, of course, is that it will be overturned. This would be worst case not just for the state but for a number of municipalities which would almost certainly be pushed into receivership due to the sharp increase in pension contributions that would be required."

Similarly, the fiscal fate of the state's cities and towns was central to the Rhode Island Center for Freedom and Prosperity's perspective on the litigation.

"Cities and towns have an even more precarious pension situation them than the state. From a cities and towns point of view, this uncertainty is making it almost impossible to plan their budget," said Center CEO Mike Stenhouse.

Stenhouse continued, "This mediation process predictably was unfruitful, has caused more uncertainty, with Moodys clamping down, it's another indication of how our elected officials and our public are having their voices removed by special interests that are looking to roll back a law."

Taxpayer advocacy group OSTPA offered their perspective on behalf of their membership.

"The public sector unions have done their job trying to protect their union members. The state has done their job trying to protect every RI taxpayer. The time has come to fish or cut bait. The judicial system needs to determine the constitutionality of the pension reform law. Do our elected officials retain the power to make laws that are in the best interests of the taxpayer? The stakes are very high, but our government officials need to know where they stand for today and in the future," said OSTPA's Lyn Jennings. 

"Every year, through the budget process, elected officials set priorities. If the pension law is upheld, the Governor and the General Assembly can go on fighting the current battles for allocation of resources in the face of high unemployment and an unforgiving economy. Both the taxpayer and the union members will have a sense of finality. Members of the public unions can move on knowing that their government has done what is necessary to ensure the pension system is viable for current and future retirees," continued Jennings.  "If the pension law is reversed, there is no doubt that RI’s economy will suffer further. Our current priorities when allocating scarce resources will be thrown out the window to make way for the new priority of funding state employee benefits. At that point, many RI taxpayers will revisit the role public sector unions will play in the future. The RI voter will need to make the decision as to whether we are governed by the people or we are governed by the public sector unions."

Jennings concluded, "We believe the best case scenario in the near term, is for the pension law to be upheld so RI can move on to the business of improving its economy. But if the law is reversed, long term, it may force a change to the status quo political landscape."

 

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Comments:

Who will prevail? Not that tax payers, that's for damn sure. Those sons of bitches lose every single time!!!!!!!!!

Comment #1 by pearl fanch on 2014 04 15

With all do respect to Ms. Jennings, we would never had been in this position had the General Assembly and the previous Adminstrations lived up to their end of the contribution and proper investing of the Retirement fund. They've used it as their "slush Fund" for a lack of a better term through the years to provide their own retirements, there relatives retirement's, their political friends retirements and the retirements of thousands of people who never contributed a dime. Employees have been mandated since day one to contribute their share and to date no one knows, other than the treasurer and her staff, how much money every employee, union or non-union, has contributed, the state matching contribution and the interest its earned since the beginning. They never report to the employees exactly what's in their retirement account, so no one will ever know. The Defined Benefit Plan was based upon minimal years of service and portion of their salary when they got to at least 59.5 years or age 62.

Comment #2 by Jeff Crawford on 2014 04 15

Where have you people all been since RIRSA got passed in 2011? You were all happy that raimondo took moeny away from the pension people but you did not realize when she did it, she was on shaky grounds. Where were your comments back then when court was the cry? So now you people all cry foul? Catastrophe? Pension woes? The poor taxpayers? Funny how all of you, politicians, anti union commentators, constituents and voters all were clapping for Raimondo when the GA passed her risky pension legislation but now you people are not clapping any more. How come? What she did in 2011 passed by the GA was a risk--and you are morons to think that her law was not going to be challenged. Such selfish thoughts you have and now you believe the hypocrite saying it will cost money?
Of course poeple are going to appeal this illegal decision. She breached contract law and yet she won't tell you that.
Raimondo again calls the pension court battle CATASTROPHIC for the state...She is using scare tactics again..commonly used when a person knows that she may not win....

What was Catastrophic was RIRSA being passed in 2011. That created the conditions for thew spending of money three years later. She knew what she was doing back in Nov. 2011 and if she thought then that people affected by the changes would not appeal the decision, then the woman is more arrogant than ever to think RI people are stupid and will forget about it. She is the naive one in this case...

No one has written except me that it was her RIRSA 2011 that caused the court battle mess where it will cost the state a lot of money...The court trial was brought about by Raimondo's actions and the money she will spend to defend a risky take on the law,will be in the thousands. This was all her doing. She created the state expense with a pension plan she had passed that was a breach of contract and unconstitutional. She needs to blame herself and not blame the pension people and the retirees. She is using tactics that are used across the country in various areas of politics, in education issues, in elections, the "scare tactics propaganda" technique...Don't let her bmboozle you with a technique used across the country---the use of the word "Catatrophic " denotes fear and that is exactly what the wannabe governor wants you to feel- afraid, scared, angry that money is going to be spent on lawyers in court...all her doing. Raimondo appears on TV and scares the people saying "The sky is falling- the sky is falling" when it comes to the pension...
Don't be fooled...This self serving hypocrite who is trying to pass herself off as middle class, created the conditions herself with her draconian implemented pension bill.
She blames everyone else but herself. And the way she threw Chafee under the bus when she did not support him on the municipal pension issue, she will also throw people under the bus who do not suit her self serving agenda.
This is the Chafee-Raimondo-General Assembly Mess..when RIRSA 2011 got passed, that opened up the door to litigation. Case closed.
You need to blame the person who created this...Raimondo and her enrage ri buddies and the GA. In their haste to screw the pension people, they screwed taxpayers as well. They used cola money for other expenses of the state like paying off 38 Studio investors and the 4.5% fees of Gina Raimondo's hedge fund investors...And you want this woman as your next governor? She failed to help the people to whom she got the money to start her millionaire Point Judith Investment business-the Pension system...she takes from the pension and then throws the pension people under the bus? And you call that a person of integrity? I will not tell you what I call it....

Comment #3 by joi fons on 2014 04 15

"The lesson of the failed settlement agreement is there shouldn't be mediation with a liar. That, bluntly, is it," said Siedle. "The truth in numbers report was a lie. By the time of the settlement vote, there was deep suspicion as to the numbers, and a profound sense that people are being hoodwinked into agreeing to a bad deal, and that [Raimondo] hadn't been honest about how those hedge fund fees would skyrocket."


Those of you who are Raimondo supporters, need to rethink your reasons why you support this hypocrite arrogant corporate carpetbagger who was away 10 years making her millions and then comes to RI for self gain....

Comment #4 by joi fons on 2014 04 15

Most of the members of the retirement system understand that a win in the courts would still require a re-engineering of the system, but this time a real negotiation, not a legislative lynching. There are many parameters and components that could be reconfigured into a sustainable pension system, not just necessarily the ones dictated by Raimondo and Mattiello. Meet with the unions in a respectful discussion as equal partners with a problem to solve, and not as perpetrators. After all, it was the legislature that caused this problem, and have been allowed to sweep all of their past abuses under the rug.

Comment #5 by Richard Sparks on 2014 04 15

As always the low man (and woman) on the totem pole is the lowly taxpayer. Let's be honest people; we always knew it would turn out this way...it always does in RI.

Comment #6 by Solomon Venturi on 2014 04 15

People are crazzzzy. See you in court. In the end it will go the states way. The bigger question is will national labor leaders try to stop the unions from appealing to SCOTUS to avoid setting a national precedent.

Comment #7 by Redd Ratt on 2014 04 15

The process crafted in mediation was flawed to say the least. Some people I know never received their ballot thus being counted as a "yes" vote. While the talks have failed, mediators should restart the process with a majority vote done in a traditional manor, not the back door approach used. Only then would the State and retirees truly find common ground. The zero-sum game which will go forward in court will benefit nobody.

Comment #8 by Gansett Proud on 2014 04 15

Interesting, one would think the folks who are entitled to pensions are NOT taxpayers. How many of the poor "taxpayers" whining about this are NOT sucking down some other form of government assistance? Reminds me of DEPCO and the whining "Depositers" who took the risk for "big interest" and got US to pay the bill when it all turned to bleep on them.

Comment #9 by G Godot on 2014 04 15

Te title question who will prevail will surely be the lawyers on both side, and though each say they have a strong case, it is the lawyers who cannot lose.
Going to trial is a victory for extremists who don't want to compromise. I cannot understand Block and Fung who would risk not only skyhigh legal fees, but 94% of savings. And the pensioners who sued risk the whole system going bankrupt if they prevail. And the crisis is not only the legislature's fault, there were insiders who gamed ther system with big raises their last few years, who "bought" years, and folks such as the teacher union leaders of the late 1980s who got themselves a state pension even though they were not state employees.

Comment #10 by barry schiller on 2014 04 15

Barry, I don't consider myself an extremist. Rather, I feel that this should be settled law. Employees and future employees should have a clear picture of their compensation and what they should expect. Politicians should have no choice but to fully contribute to the employees retirement in real time. Waiting for the economy to grow and making up missed contributions later is pure folly and how we got into this mess. The downside is that money won't be available for other services and it will be the poor that feel the brunt of it.

Comment #11 by Redd Ratt on 2014 04 15

Doesn't it seem odd that if Raimondo was such a fraud that by now, her numbers would have proven to be wrong without question? Is she THAT powerful to dupe the general assembly and governor into inking a pension reform law? But, be still and know that farm raised judges will be making the calls.

Comment #12 by David Beagle on 2014 04 15

The most likely outcome is that the law will not be upheld or striken down IN ITS ENTIRETY. Judges like to rule on the narrowest grounds possible. The state certainly has the right to change the retirement rules for new hires (since the 2011 legislation) but I believe any changes for those already retired would be a breach of contract. Retires are the group that bears the brunt of the financial burden for this legislation which should have been named, "Throw grannie under the bus." Those employees who are vested in the system will likely also prevail. Beyond that, it is not clear and I don't think anyone knows who will win. The groups involved do not have equal legal claims or interests. They need separate representation.

Comment #13 by Fruma Efreom on 2014 04 15

Fruma, In addition to the question of was there a "contract" is does the state have a compelling need to break the contract. The judges may say there is a contract but the consequences of enforcing the contract would destroy the states economy.

Comment #14 by Redd Ratt on 2014 04 15

From what I've read the biggest question is about the Raimondo's numbers and how they relate to the pension COLA. The payments will be based on the performance of the hedge fund. The performance minus the payments to managers. The payments to the managers and performance of the funds that effect COLA and pension payments, will be secret. Mr. Siedle is right when he calls this a license to steal, a temptation I don't trust any of our fine RI politicians to be strong enough avoid.

Would any one invest with a manager that won't give fee information upfront or wouldn't inform you of the funds earnings? That's what I take we're asking the state pensioners to do.

Comment #15 by Wuggly Ump on 2014 04 15

Redd: You're buying into Raimondo's math. It's not real. Just because something is put into the form of an equation, that doesn't make that equation valid. Her numbers wouldn't pass 9th grade algebra. To explain what is wrong with her Truth in Numbers would take a long, complex description. Let me just point out that every cent that she is supposedly saving on COLAs is being spent on Wall Street hedge fund and other fees. For a simple example of what is wrong with her numbers, look at her latest tweets to her supporters. If you invest $1,000 in fund X and pay $100 for the privilege, you are paying 10% or 1000 basis points (I believe 100 basis points equals one percent). Raimondo says that since the full fund contains $100,000, she is only paying .1% or 10 basis points to fund X. She's dividing by the wrong number. The correct way to present it is to divide by the investment in that particular fund not by the total money in the pension fund. That's why Siedle is calling her a liar. Her numbers are purposefully deceptive. At least that's the only way they make sense to me.

Comment #16 by Fruma Efreom on 2014 04 15

Whaaaa….Whaaaa……!! The State is broke. How will we ever balance the budget?
We can start by cutting the salaries in half of all elected officials. They don’t do anything, anyway, except steal from us.

Since there is no money, then we don’t have to pay those bondholder who own all the local and state issued bonded indebtedness. But I guess we can’t do that since they do all the work, and besides, they have a contract - a promissory note - not like those greedy, good-for-nothing teachers and public employees. We have a legal and moral obligation to the bondholders who were kind enough to loan us money.

Maybe we could explain to them that there is no money or have the GA pass a law which says we don’t really owe them money because we can’t afford it. Maybe if we ask them nicely, maybe they might take pennies on the dollar.

Why haven’t any members of the GA, or the Party of Freedom and Prosperity thought of this?

Wait, Wait, we can’t stiff the bondholders. The General Assembly passed a law that says they are to be paid first, with interest, before those who worked all their lives. That sounds fair to me, and to all freedom-loving people

Comment #17 by Johnny cakes on 2014 04 15

Who Will Prevail?..EVERYBODY BUT THE TAXPAYERS!

Comment #18 by LENNY BRUCE on 2014 04 16

The state will prevail because it has too. There is no other option, short of selling everything the state owns including the indian guy sitting on the statehouse.

Put everything the state owns on ebay if the state loses and it probably still wouldn't be enough.

Otherwise what?
Amortize it for a few hundred years?
Raise sales tax to 15%?
Triple the income tax rate?

Comment #19 by Odd Job on 2014 04 16

Fruma Efreom -

Exactly. The worst thing one can do is buy into the treasurer's figures which have been put forth to get citizens off the track, playing the treasurer's game, dancing to their tune rather than reality.

This is a simple issue: breach of contract. If they get away with this, it will establish a precedent to break other contracts when honoring them becomes inconvenient.

This may be the actual goal: establish precedent to render all contracts as 'flexible' if not void altogether.


For the Giddy who post their tiresome, insipid, misogynistic snarkiness here and elsewhere, should breach of contract become acceptable, they can expect their oxen to be gored sooner than later.

Comment #20 by paul zecchino on 2014 04 16

Fruma, if the court decides Raimondo's numbers are factual is what matters. Not how much the management fee's are on the pension fund.

Comment #21 by Redd Ratt on 2014 04 16

Superior Court decision sometime in 2015.

The loser appeals.

RI Supreme Court takes the case and renders decision sometime in 2016.

The loser appeals.

SCOTUS decides to take the case though maybe not till 2018.

Decision is 5-4. If no Judge has passed in between now and then the State wins.

Comment #22 by Jim D on 2014 04 16

If you are an ERSRI retiree who left service before 11/18/2011 and want to continue the fight for the reinstatement of your COLA,please email [email protected]
A group of retirees,who opposed the S.A., have retained legal counsel and filed a separate Complaint from that which was filed by the retiree coalitions,chapters,etc.-who have vigorously supported the acceptance of that agreement.
Note:If you are a member of a retiree coalition...you are now represented by Atty.Iafrate. If you never joined a retiree coalition...,you presently do not have representation.

Comment #23 by catherine celeberto on 2014 04 16

A June 2009 report by a Rhode Island Special House Commission system on pensions “analyzed the likelihood of success of three different ‘groups’ of [potential] plaintiffs — (1) active employees with less than 10 years of service; (2) active employees with more than 10 years of service; and (3) retirees. Funny that you never hear about this. Sean O'Leary, the private attorney for retirees, quoted from it in an article in the Journal that quickly found its way to the back of the website.

It said: “Retroactive reductions to retiree or vested employees are clearly at heightened risk.”

The commission analyzed the differing levels of ‘risk’ to the General Assembly involved in changing the then-pension-benefit scheme. Specifically, the commission found that the risk associated with changing the retiree benefits was greatest because a court was most likely to overturn changes to retiree benefits.”

In response to Redd, courts have been highly skeptical (and rightly so) of claims by states that we can't afford to pay our contracts. I certainly hope that evidence will be presented regarding Raimondo's calculations. You will notice that since pension "throw grannie under the bus" legislation passed, the state offered early retirement incentives to faculty at URI. Broke? It also voted to pay 38 Studios investors. Broke? It also voted millions and millions in new expenditure. Broke?

Comment #24 by Fruma Efreom on 2014 04 16

Fruma, Hopefully we have paid our last dime to 38 studios. I'm glad we'll have a precedent for both sides to work with. Hopefully we'll light the path for other states to follow on what is constitutional. If the unions win, I just don't see a whole lot of good coming out of it. The aide to cities and towns will have to be slashed driving them into bankruptcy. That ends pensions for those workers (ask the CF retirees). The poor have draconian cuts to social services. And the high wage earners that are mobile will get out of state in a hurry. Taxes will have to be raised and businesses will leave as well. Lots and lots of pain to go around.

Comment #25 by Redd Ratt on 2014 04 16

Redd: Lots and lots of pain if it prevails. Most retirees depend on the COLAs and will not be able to afford to live in Rhode Island without them. Talk to these people; I have. Even the most prudent financially can't afford this. They pay more than twice their COLA in state income tax. When you add in sales tax and the business taxes of those companies they use, you'll find that their COLA is repaid at least four times over. If even one in four is forced out of the state to other states that are more retiree friendly (what state isn't), then Rhode Island loses. That doesn't even count the many other ways that retirees contribute to the community. This was a phony issue from the start using phony mathematics. In 2009 the state legislature undertook a study of pension revision and concluded that retroactive cuts to retirees and to those already vested in the retirement system had a high likelihood of being overturned in court. Raimondo conveniently forgot to mention that. There were never any savings here, all the COLA money went out of state to Wall Street types like financial advisers and hedge fund managers. That's the real truth in numbers.

Comment #26 by Fruma Efreom on 2014 04 16

Fruma, the public union retirees, other retirees, young people starting out are all going to be leaving the state. This is happening now and in 2020 we'll lose a seat in the House of Representatives. From 2000-2010 the U.S. grew 9.7%. Rhode Island grew 0.4%. The problem isn't going to get better. Unless the General Assembly pulls their head out of the sand, stops borrowing money and implements pro business, pro growth policies the hemorrhaging won't stop.

Comment #27 by Redd Ratt on 2014 04 17




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