The Rhode Island legislature completed hearings on Tuesday on the reform bill proposed by Governor Chafee and Treasurer Raimondo. The proposed reforms, many explained here, include:
- Freezing COLA increases in benefits for retirees for up to 19 years;
- Creating hybrid plans for current and future employees with a defined contribution portion, similar to a 401(k) and a smaller, defined benefit portion;
- Raising the retirement age from 62 to the age when individuals begin receiving social security;
- Amortizing the remaining defined benefit plan over 20 years.
Now, lawmakers are debating potential amendments to the reform bill, and it could be weeks until they vote on a final version. Among union leaders, eliminating the COLA is understandably one of the most unpopular parts of the bill because it significantly reduces the amount of money retirees will receive over the the course of their retirement. However, this part of the bill is key in saving RI taxpayers about $3 billion and ensuring that the pension fund will remain solvent.
State union leaders suggest that instead of the reforms proposed by the state’s democratic administration, Treasurer Raimondo should adjust the fund’s actuarial assumptions. They support changing the fund’s expected growth rate from 7.5% to 7.75% and adjusting the assumed average life expectancy for retirees. Their resistance to more significant reform is surprising, given the dire consequences that union members suffered in Central Falls, RI. There, the local pension fund became insolvent, leading the municipality to bankruptcy. Now, many Central Falls pensioners are receiving less than half of the benefit that they were promised.
The fate of this bill in Rhode Island is important not only for local employees and taxpayers, but for troubled pension funds across the country. If Rhode Island is able to enact reforms that protect retirement benefits and taxpayers, it will serve as a model for other states.