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Riley: Politics and Pensions - Has Raimondo Given Up?

Tuesday, March 28, 2017


In 2011 when Jim Lehrer and Paul Solman interviewed Gina Raimondo about Rhode Island's pension crisis, her focus was squarely on the many severely underfunded local pension plans that threatened to create chaos across the state.

PAUL SOLMAN: So, what’s the hit that the average pensioner of Rhode Island is going to take? What’s the haircut, as it’s called?

GINA RAIMONDO: I think it could be a significant hit.

PAUL SOLMAN: Twenty percent, 30 percent hit, it could be?

GINA RAIMONDO: It could be. It could be. You know, in Rhode Island, we have 105 pension systems. So, for certain sections, the haircut will be significant, you know, 30, 40-plus percent. For other, you know, systems, it will be less.

GINA RAIMONDO: This problem of the pension, Rhode Island faces it; every state in the country faces it. The unfunded pension liability nationwide is a $3 trillion problem. TARP, we were prepared as a country to put aside $700 billion. The bailout of Fannie and Freddie was $400 billion. They all pale in comparison to the enormity of this financial challenge.

And marginal change won’t fix it. Tinkering won’t fix it. Pretending we don’t have a problem won’t fix it. Looking in the eye of this enormous financial problem honestly and recommending fundamental changes to a system, I believe, is the solution.

These days in 2017 Governor Raimondo almost never refers to the Municipal Pension Crisis. In 2011, as part of RIRSA, a commission was formed by Governor Lincoln Chafee and Chaired by Rosemary Booth Gallogly the State Revenue Director. “The Commission was established to review existing legislation and pension plan administrative practices and to make recommendations for the improved security and funding of locally-administered pension and other post-retirement benefit obligation plans of municipal entities.” 

What Happened - Nothing

The commission was very concerned about those communities in “critical” status which was defined as 60% funded or less. That meant the town had only 60% of the funds necessary to pay local employees for the promises already made by the Mayor or Council.

Over the next 3 plus years the commission met 39 times and spent over 1000 hours in training town officials and reinforcing the math and the consequences of slow action to reform. Cities were required (and paid) to produce new, up to date, actuarial reports and to then submit a funding improvement plan “FIP” to the commission. This was all completed by 2013/2014. In 2014 the commission attempted to address OPEB liabilities, but this effort was unsubstantial basically glossed over. Then in late 2014, after collecting all the data, Gallogly/ Chaffee submitted the report you see highlighted above.

It won’t surprise many in Rhode Island to find out that nothing happened. No permanent oversight took place, no laws were changed, nothing. But we did gather data and we did get the towns on the record and to formulate improvement plans. As part of that exercise the towns made predictions about how they were going to emerge from critical status.

I’ve taken the towns' own predictions in 2013 for unfunded liability in 2016 and their expected funded ratios and compared those predictions to the actual numbers today. My report shows a huge miss and obviously, there were no consequences for any town, even those who didn’t even attempt reform or try to set aside more money to fund the liabilities.

The report shows that only one town emerged from “critical” status since 2013 and that one is controversial -- Narragansett using smoothing of returns shows a 61% funded ratio. But Narragansett was only 57% funded when using market value of assets at measurement time, June 30, 2016. Several towns had significantly under-estimated their 2016 unfunded liabilities by double digits amounting to hundreds of millions of dollars. The worst of these included Providence, Johnston and Cranston.

It also became clear that there was a significant variance in investment returns and a general lack of transparency of providing those returns to the public. 

My report will show that the Municipal Pension problem is now much worse than 2011 and 2013 and the Treasurer who was so concerned back then is now our Governor who has a real crisis that is growing whether she wants to admit it or not.

Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC.   


Related Slideshow: Timeline - Rhode Island Pension Reform

GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform. 

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In the five years before Raimondo was elected, pension changes included a decrease in established retirement age from 65 to 62, increased eligibility to retire, and modified COLA adjustments.
Read the Senate Fiscal Office's Brief here.
(Photo: 401(k) 2013, Flickr)
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January 2009

Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:

1. An established minimum retirment age of 59 for all state and municipal employees.

2. Elimination of cost-of-living increases.

3. Conversion of new hires into a 401(k) style plan.


See WPRI's coverage of Carcieri's proposal here.

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Rhode Island increased mandatory employee contributions for new and current employees. New Mexico was the only other state to mandate current employees to increase their contributions. 


Read the NCSL report here

(Photo: FutUndBeidl, Flickr)

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Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.

"This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo


Check out Wall Street Journal's coverage here.

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November 2010

Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot. 

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April 2011

Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.

Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.

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May 2011

Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.

"Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)


Read GoLocalProv's analysis of the report here.

Read the Truth in Numbers report here

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October 2011

Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.

“Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee

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October 2011

Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.

“You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)

Read more from the firefighters' battle with Raimondo here.

Check out the New York Times' take on RI's  pension crisis here.

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November 17, 2011

The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.


Read more from GoLocalProv here.

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November 18, 2011

Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.


Read about how Rhode Islanders react to RIRSA here.

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January 2012

Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms.  The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.


Read about the pension workshop here.

Read Raimondo's feature in Institutional Investor here

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March - April 2012

Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.

“The present law is sound fiscal policy and should remain unchanged.” -George Nee (Rhode Island AFL-CIO President)
See WPRI's coverage of Chafee's attempt to cut pension fund deposits here.
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December 5, 2012

Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package.  In response, Chafee issues a statement supporting the negotiations.


Read more about Raimondo's opposition here.

Read about Chafee's statement http://www.golocalprov.com/news/new-chafee-issues-statement-supporting-pension-negotiations/">here

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March 2013

Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.


Read about Raimondo's discussion of distressed municipalities here

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April 2013

The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.

"In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)


Read GoLocalProv's coverage of the State Pension Fund's losses here

Read Ted Seidle's criticism of Raimondo in Forbes.

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June 2013

Reports show that the State’s retirement system increased in 2013 by $20 million despite the reforms being put into effect the previous year.


Read GoLocalProv's investigation into the rising pension costs here.

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September 2013

Matt Taibbi publishes an article in Rolling Stone detailing Raimondo’s use of hedge funds as a questionably ethical tool to aid with pension reform. 

Read Taibbi's article in Rolling Stone.

Read GoLocalProv's response to Taibbi here.

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October 2013

As Raimondo eyes the role of Governor of Rhode Island in 2014, more behind-the-curtain information about the 2011 pension reform comes to light.


Read more from GoLocalProv about the players in the pension battle here.


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