Riley: No Need for Commission

Tuesday, June 14, 2016


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A recent bill in the RI Senate  - 2016: S 2872 SUBSTITUTE A - was introduced by Lincoln State Senator Ryan Pearson to establish an advisory council to monitor cities and towns pension pension plans. The wording is as follows:

 45-65-10. Oversight and report on the status of locally administered pension plans. - - (a) An advisory council regarding locally administered pension plans shall be established and consist of:

(1) The general treasurer, who shall serve as a chairperson;
(2) The auditor general;
(3) A representative of organized labor appointed by the governor;
(4) A representative of the Rhode Island league of cities and towns; and
(5) The director of revenue or designee who shall be from the office of municipal finance. (b) On or before April 30 of each year, the advisory council shall provide to the governor's office and to both chambers of the general assembly an annual report that shall include a "performance dashboard" of all pension plans used by either the state and/or any municipality or municipal employees, that sets forth for each plan;

(1) Fund performance for each plan's most recently completed and previous five (5) and ten (10) fiscal years;

(2) The total percentage of the plan that is funded;
(3) The percentage of administrative costs of the fund as measured against the fund’s assets;
(4) Assumed and projected rates of return for the funds; and
(5) The municipality's or community's capacity to pay the municipality's required funding payment as a percentage of their tax levy ratio.
(c) Cities and towns shall supply the information requested by the advisory council to furnish this report.
(d) The report shall be accompanied by an opinion prepared by the general treasurer regarding the sustainability of each plan and any potential areas of concern.

SECTION 2. This act shall take effect upon passage.

======== LC005512/SUB A ========

No teeth, No Point

This is not the first attempt to address the many underfunded municipal pension plans in Rhode Island. It is a fact Rhode Island is particularly bad at managing defined benefit pension plans. As far as I know in the last 15 years there have been have a dozen Senate and House pension study commissions that have accomplished very little and in fact served to kick the can down the road. The Auditor General, who reports to the House Speaker, has no punitive powers. Several cities have ignored warnings and continuously broken laws such as Section 45-10-15 of the Rhode Island General Laws requires a municipality to submit certain information when they have not contributed 100% of the annual required contribution. This law was laughed at because there were no penalties. Here is Auditor Almonte’s report from 2007.

As far as I know none of those cities ever paid a fine or had any one fired or in any way was reprimanded. No teeth, no point.

Let’s suppose that this Pearson proposed commission identifies Providence as violating federal securities law, like they are right now. Would they have a duty to notify regulators? Let’s say they know that Providence has violated securities law by misleading municipal bond holders and they don’t do anything about it. What then?

Mr. Pearson Call Mr. Neronha

I applaud Mr. Pearson’s concern over the looming Municipal Pension nightmare because it is real, but I suggest an easier and healthier path to get cities and towns to comply with already existing pension reporting and funding laws laws. Bring US attorney or FBI to investigate Providence because Providence has done so much wrong and already threatens the economic viability of the State as a whole, we saw Karen Macbeth and her courageous efforts to do what’s right and question the cover-up of 38 Studios dishonesty. It would be great to have another legislator stand up for the State Taxpayer and her exposure to a mismanaged and fraudulent Providence. That investigation would quickly get other underfunded and less than honest cities and towns like Johnston into compliance with existing law without having to form a toothless commission.

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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">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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