Friday, October 24th, 2014

Linc-O-Meter

Reform state employee pension plan


Reform pension plans: Reamortize pension; create hybrid 401(k), audit existing plan, develop long-term plan to coordinate retirement age with Social Security age.


Updates

Chafee got pension plan changes, but not in the way he had hoped

Pension reform was a key element of Lincoln Chafee's platform for governor.

During his campaign, the former Warwick mayor and U.S. senator promised to reform both the state and municipal pension systems, warning that growing costs threatened to overwhelm the state and many cities and towns.

(We originally listed this as one Promise, but subsequently divided it into separate Promises, one dealing with the state plans and one with the municipal plans. This review examines the state plans.)

Chafee's plan included several elements applicable to state pensions:

* Reamortizing the existing system -- essentially borrowing money over a longer period of time to refinance the system and reduce its unfunded liability

* Developing a hybrid system that mixes fixed benefits with a 401(k)-style component

* Raising the age and years-of-service requirements for pension eligibility

* Substantially lowering the benefits for new employees

* "Moderately" changing the benefits for workers who have been employed by the state for 10 years or fewer by modifying the disability rules

* And reducing the disability pensions of people who were not totally disabled.

As the debate over the pension systems evolved, pushed largely by the efforts of General Treasurer Gina Raimondo, it was clear that Chafee wasn't going to get what he wanted.  Raimondo and the General Assembly balked at including the city and town pension programs as part of the legislative package, saying that the municipal problems were more complicated.

The legislation signed in November left several of Chafee's goals in the dust.

Although it redirects a portion of retirement contributions into a 401(k)-style retirement plan and raises the minimum age for retirement, other elements of the Chafee plan were not incorporated. A portion of the pension system was reamortized for an additional six years; Chafee had wanted eleven. Defined benefits accrued through June 30, 2012 were not reduced, although lower rates take effect after that. (Cost-of-living increases were put on hold until the plan stabilizes.) There were no dramatic changes to the disability program.

In summary, Chafee promised state pension reform and that overarching goal was achieved with his support, a strong push by Raimondo and support of the General Assembly.

But some of the specific reforms he promised to accomplish the overhaul were not part of the package because key players found them unacceptable.

As a result, we rate this promise as a Compromise.

(This item, first published April 26, 2012, originally said -- incorrectly -- that there was no reamortization and defined benefits were not reduced. It was corrected on April 30, 2012. Our ruling continues to be that this is a Promise compromised.)

Sources:

The Providence Journal, "Landmark overhaul becomes the law," Nov. 19, 2011

Treasury.RI.gov, "An Employee's Guide to Understanding the Rhode Island Retirement Security Act," January 2012, accessed April 26, 2012