Donna Perry: The COLA Advantage
Thursday, October 27, 2011
Among the countless compelling nuggets of information that have emerged as the pension reform hearings process got underway this week was a revelation by Treasurer Gina Raimondo that in essence captures all that is wrong with the Rhode Island pension system—and why it is at the breaking point.
It’s well known now that one of the cornerstone elements sought in the Raimondo-Chafee Reform Plan is to suspend cost of living adjustment payments (COLA’s) to retirees. The immediate and ramped up rhetoric from the unions against that idea was fully expected because naturally, they deem the suspension as unfair.
But what may nothave been widely understood up to now, as Raimondo’s opening day testimony revealed, was why the unions would be so adamantly opposed to losing the cherished compounded COLA—and likewise why her intent to suspend them should be deemed as absolutely fair.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTIt turns out that despite union claimsthat losing the COLA will leave throngs of retirees impoverished; Raimondo’s data demonstrated that an enriched retirement, as opposed to poverty, is a little closer to the truth for groups of retirees.
A Broken System
The Treasurer testified that nearly half of all state worker retirees (48%) and more than half of all teacher retirees (58%) are presently earning more in annual payments in retirement than they ever earned in annual salary during their working years, courtesy of the compounded COLA. Tough to find a retirement plan that can remotely match that these days. The yearly addition of the COLA to base pension has translated into layers ofretirees, specifically those aged 65 or older who logged over 30 years in state employment, now receiving up to 100% --and beyond--of their former salary. Rhode Island’s contemporary compounded COLA payment mechanism has wandered very far from the original intent of supplying a modest cost of living increase payment for what is traditionally the fixed income years. Quite to the contrary, what the Treasurer validated this week was that the state pension fund COLA payments have amounted to a windfall in retirement for all too many workers, leaving behind overwhelmed taxpayers and a collapsing fund. Simply put, a system that is providing that kind of a retirement benefit is a broken system that needs the type of reforms now on the table.
Other notable moments as the General Assembly took the reins of the Reform Plan this week included the ramped up presence of Governor Chafee on the side of reform. Though the Governor nearly caused an eleventh hour disruption to the introduction of the Plan last week as he sent confusing signals over his intent for a strategy on addressing the municipal pension piece, Chafee, at last, seems to have found his footing.
The Governor, though often rightfully accused of working off an unfocused playbook, now seems sincere in his effort to see this reform plan through to the end. His new alignment with the reformers, which amounts to treason from the union’s viewpoint, could help restore some of his damaged reputation stemming from other skirmishes with the taxpayers and their general distrust of him. If Chafee stays consistent and is seen as playing a key role in the effort to shepherd the Plan through the Legislature, he will enhance his standing with the taxpayers on the state’s central fiscal issue, and could enterhis second year in office on much more solid ground.
Must Block Attempts To Water Down Bill
Although Chafee was right to insist on addressing the mounting municipal pension fund messes, the Treasurer’s insistence that they be handled on a parallel but separate path seems the smartest strategy.The troubled cities which Cranston Mayor Allen Fung and Providence Mayor Angel Taveras leadalso happen to be the hometowns of Speaker Gordon Fox and Majority Leader Nicholas Mattiello. The mayors should appeal to these two top House leaders to help their own hometowns tackle the politically harrowing but now fully necessary COLA problem as it relates to local contracts.
Leadership’s immediate task though, is to block attempts to water down key elements of the central plan now before them. As RISC, the RI statewide Coalition, noted this week as it issued its support, the ultimate success of the Raimondo blueprint hinges on interdependent components of the Plan staying in place. Though some municipal leaders are voicing disappointment that the Plan’s projected savings do not come in as high or as fast as perhaps they would have liked, the Plan represents a recognition of the complex fiscal, legal, and political realities at hand.
There’s no question the justification for suspending the COLA has now been made vividly clear. But math is one thing. Extracting a COLA out of the hand of someone who has spent years savoring its taste, is quite something else.
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