Landmark Pension Bill Passes House, Senate
Friday, November 18, 2011
The General Assembly overwhelmingly approved a sweeping overhaul o the state’s pension system Thursday night, and now the legislation heads to Governor’s desk for final approval.
The Rhode Island Retirement Security Act on 2011 passed the House 57-15 and the Senate 34-2 at a special session called to address the state’s pension crisis. Once Governor Chafee signs the bill into law, the changes to the system would be effective July 1, 2012.
On the House side, Reps. John Carnevale, Roberto DaSilva, John DeSimone, Spencer Dickinson, Deborah Fellela, Scott Guthrie, Ray Hull, Robert Jacquard, Raymond Johnston, Charlene Lima, Leo Medina, Rene Menard, Mary Messier, Peter Palumbo, William San Bento voted against the legislation. On the Senate side, Sens. Frank Ciccone and John Tassoni were the two nay votes.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTImmediate Reduction of Unfunded Liability
Thursday’s landmark vote comes after nearly a year of planning from General Treasurer Gina Raimondo, who was widely viewed as the leader of the legislation. The pension reform package cuts the state’s unfunded pension liability by $3 billion and will save taxpayers nearly $300 million by 2013, according to Raimondo.
"Today we saw what can happen when a thoughtful process and leaders come together for the people of Rhode Island," Raimondo said. "The Rhode Island Retirement Security Act passed because Rhode Islanders called for action and change. Passage of this bill is a great step forward as we continue to work to put our state on a secure path toward growth and prosperity."
Teachers, state employees and the state-administered municipal plans (MERS) will all be enrolled in a 401k-style hybrid plan shift that shifts the risk to the employee through combining the attributes of both the defined benefit and defined contribution plans. Public safety employees and judges will not be a part of the system.
The act also institutes a proportional retirement eligibility structure for most employees between ages 59 and 67, depending in part on the employee’s current years of service. Those already eligible to retire as of June 30, 2012, would not have their eligibility to do so change. The act ensures that retirees do not lose any COLAs (cost of living adjustments) granted prior to July 1, 2012, but suspends future annual COLAs until the aggregate funded ratio of the Employees’ Retirement System of Rhode Island, the Judicial Retirement Benefits Trust and the State Police Retirement Benefits Trust exceeds 80 percent.
The act establishes a limited, risk-based COLA that is only granted when the pension system is well-funded. The COLA would be equal to the difference between the five-year smoothed investment return and 5.5 percent, calculated to equal no more than 4 percent and not less than zero. The proposed COLA would be applied to the member’s first $25,000 of pension income.
Assembly Leadership Praises Passage
The legislation faces large opposition within the labor movement, but General Assembly leadership still managed to convince rank-and-file lawmakers to support its passage. House Speaker Gordon Fox said the reforms simply “cannot wait any longer.”
“The unfunded liability of our pension system has spiraled to new depths in recent years, and without these changes, would grow even more dramatically in the very immediate future. These are not simple fixes, they are long-term plans intended to right the ship,” Fox said. “Addressing this very complex issue involved sacrifice at many levels as well as courage, patience, thoughtfulness and fortitude from our members, the treasurer, the governor, local leaders and those representing the employees this affects, as well as the members of the House and Senate finance committees, who conducted 29 hours of public testimony and made amendments to help craft legislation that is fair, balances the costs and risks between employees and the state and protects the fiscal integrity of the retirement system, the state and municipalities.”
There was some question as to how the bill would hold up in the Senate, but Senate President M. Teresa Paiva-Weed was able to convince her members to pass the legislation nearly unanimously. Paiva Weed called the changes to the system fair to everyone involved.
“Passage of this critical piece of legislation ensures that resources will be available to invest in education, infrastructure and our human services safety net, while protecting the pensions of the future,” Paiva Weed said. “I believe that we have achieved reforms that are fair to employees, affordable to taxpayers, legally defensible and sustainable over the long-term. I want to thank Chairman DaPonte and the members of the Senate Finance Committee, who worked tirelessly to develop this legislation, as well as all the members of the Senate and our partners in this process, the House of Representatives, Treasurer Raimondo and Governor Chafee.”
Organized Labor: Many Victories in Final Bill
There were very few changes to the bill prior to Thursday evening’s vote as amendment after amendment was turned down. But the legislation did change quite a bit from the original version introduced by Raimondo and Chafee last month.
The most notable change is to the COLAs. The original proposal would have frozen COLAs for a period of 19 years. The new bill will allow retirees to receive a COLA every five years as long as state investments perform well.
National Education Association of Rhode Island Government Relations Director Patrick Crowley attributed a strong grassroots campaign among union workers to some of the changes in the final bill. Still, he said at least some of the bill is likely to end up in court.
“There were many victories in the final bill for labor union compared to the treasurer's draconian original proposal,” Crowley said. “The Assembly changed the age of retirement proposal, the hurtful disability proposals, the discriminatory part-time worker proposals, and the unequal proposals between the teachers, state workers and judges. We think on many things, thanks to a strong grassroots union campaign, the Assembly responded positively. On those parts of the bill that we disagree with we plan to invoke a legislative and legal and electoral strategy to fix what Governor Chafee and Treasurer Raimondo broke.”
RISC: A Watershed Movement
Under the bill, state employees’ overall contribution to their retirement will remain at 8.75 percent of their salary and teachers’ contributions will be reduced to that amount from the current 9.5 percent. Their contributions will be split between the two parts of the new hybrid retirement plan; 3.75 percent of their pay will go towards a defined-benefit pension, and 5 percent will go toward their individual defined contribution retirement account.
The state will contribute an additional 1 percent of each employee’s salary to the defined contribution plan. The legislation also reduces the length of time employees must work before they are vested in the pension from 10 years to five. The treasurer’s office has estimated that, under the new hybrid plan, retirees could receive more than 70 percent of their final average salary when they retire, a level that is similar to the retiree benefit under the existing system.
Rhode Island Statewide Coalition Executive Director Harriet Lloyd said the legislation is a step in the right direction for the state.
“The ailing fiscal condition of the state of Rhode Island took a significant turn toward improvement tonight with passage of this legislation,” Lloyd said. “This is a watershed moment and a significantly important day for every Rhode Islander. It’s important if you are a taxpayer; it’s important if you are just trying to raise your family or run a business here; and it’s important if you are a public employee, hoping to actually have a pension going forward.”
If you valued this article, please LIKE GoLocalProv.com on Facebook by clicking HERE.
Related Articles
- EXCLUSIVE: Pension Rip-off—Providence Retirees Benefit from Loophole
- Pension Fraud: Other States Crack Down
- Pension Fraud: What Are the Candidates Going to Do About It?
- Pension Fraud—Who’s to Blame?
- RI Disability Pension Tab Hits $19M
- RI’s Out-of-State Pension Tab: $142 Million
- $18 Million in Free Pensions
- EXCLUSIVE: COLAs Killing State Pension System
