RISC’s Five Pillars of Pension Reform
Monday, September 12, 2011
The Rhode Island Statewide Coalition (RISC), a bipartisan political advocacy group, submitted a detailed pension reform proposal for the consideration of the reform advisory panel and the general assembly. RISC praised Treasurer Raimondo for her work to date and also candidly recognized the “moral obligation” taxpayers have to provide “both a fair and secure retirement for years of service while we weed out the excesses of the past.”
The RISC proposal identified five primary areas of reform, including the termination and consolidation of the independent municipal plans, a new benefit calculation formula, and the overarching conversion of the entire state pension into a defined contribution style system. The “5 pillars of reform” addressed by the report were:
1. Terminations and Merger
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe proposal advocated the complete elimination and consolidation of the 130-plus local plans into a single statewide plan. All retirement credits would be recalculated and the state would assume financial responsibility for the new plan. Any municipalities with outstanding unfunded liabilities would face corresponding decreases in the amount of state aid they receive.
2. Recalculation
The proposal calls for a completely new formula to determine pension benefits. RISC recommends the new formula include a 1.5% accrual credit for each year of service, a pension cap of $100,000 annually, the elimination of COLAS, and the capping of disability retirement benefits at 40% annual salary.
3. Convert to a Defined Contribution Plan
The centerpiece of the reform proposal, the shift to a defined contribution system would create an individual pension account for each state employee and would mandate that the state deposit a suggested 6% of compensation into the account each year. This would help ensure adequate funds for retirees and would also grant employees greater control over their retirement finances.
4. Mandatory Social Security Participation
The proposal suggests that the state mandate that every Rhode Island public sector employee participate in social security and the Medicare health benefit system. When retirees begin collecting social security they would also experience a reduction in their pension benefit—one representing 50% of the individual’s total social security benefit
There would also be restrictions that would bar workers from receiving any portion of their pension prior to age 55.
5. “Shock Absorbers”
Recognizing the potential for drastic changes in the pension benefits of the state’s oldest retirees, the report calls for the creation of certain “shock absorbers” to help mitigate any unintended, and disproportionate consequences of reform.