Rhode Island Treasurer Gina Raimondo "raised the mortality rate from 65 to 87" and "used a 1994 annuity chart" to create the pension crisis.
Paul Valletta on Thursday, October 27th, 2011 in testimony at a General Assembly pension hearing
Rhode Island union official Paul Valletta says big change in predicted mortality rate helped create pension crisis
Paul Valletta Jr., president of the Cranston firefighters union, caused a stir during a recent hearing on the proposed pension overhaul plan when he claimed that General Treasurer Gina Raimondo "cooked the books" to create Rhode Island’s pension crisis.
Valletta, a lobbyist for the Rhode Island State Association of Fire Fighters and an opponent of Raimondo's proposed reforms, said the general treasurer did it two ways.
The first was by scaling back the predicted expected rate of return on the state pension fund’s investments, dropping it from 8.25 percent per year to 7.5 percent. (State pension investments have earned 5.74 percent per year over the last 10 years; 1.52 percent per year during the past 5 years.)
The second was by increasing the predicted life expectancy of people in the retirement system. Both changes automatically mean the state needs more money to pay for retirement benefits. In fact, state officials say taxpayers next year will have to contribute $615 million, nearly double this year’s payment, unless the pension system is changed.
We don't predict stock market trends. Instead, we'll stick with the statements Valletta made about the life expectancy issue.
Raimondo, Valletta said, "raised the mortality rate from 65 to 87." Eighty-seven is too high, he contended, because "if you look at the Social Security mortality rate for the State of Rhode Island . . . it's 78 years old. But when they changed that mortality rate by her actuary in that meeting, they used a 1994 annuity chart" instead of more recent and more accurate figures.
His comments raise a host of questions.
* Did the state retirement system assume that the life expectancy of state workers was age 65 before Raimondo came along?
* Did she really raise that age by 22 years, to 87, when the federal government pegs the life expectancy at 78 for Rhode Islanders?
* Did the state really use a two-decade old annuity chart to predict life expectancy?
* Did Raimodo make these decisions on her own?
We decided to investigate.
First of all, Valletta is really talking about life expectancy, not mortality rate, which is the number of deaths over a period of time.
We found Social Security data citing a life expectancy of 78.2 years for Rhode Islanders, but those numbers were from 2000. To get more recent statistics, we checked with the Henry J. Kaiser Family Foundation, which compiles all kinds of federal data, including life expectancies by state. Its latest statistics, from 2007, list the life expectancy in Rhode Island as 79.3 years. That's still pretty close to the 78 years cited by Valletta.
But that's the life expectancy for a child born in 2007. Actuaries need to have up-to-date forecasts for people with the same age profile as current and future retirees. (To show how it gets complicated, the 2007 Social Security life table shows that the typical 65-year-old male will live to age 82 but someone who is already 80 will, on average, live to age 88.)
When we asked Raimondo's office about Valletta's allegations, we were directed to the latest actuarial experience study done for the state Employee's Retirement System of Rhode Island. The state retirement board used the study -- based on data through June 30, 2010 -- when it adjusted the life expectancies of workers and retirees in April 2011.
The report from Gabriel Roeder Smith & Company says the actuaries started with a 1994 actuarial table, but the study also makes it clear that the table was only a starting point.
The actuaries then adjusted life expectancies based on gender and job (women and retired teachers tend to live longer than the typical male state worker).
The expectancies were further adjusted upward by 10 to 20 percent to insure that the pension fund has a cushion to cover costs, especially at a time when life expectancy is increasing. Then the estimates were compared with actual death rates to see whether further adjustments were needed.
According to the latest report, especially a key chart on page 28, the initial adjustments weren't enough.
For example, the state actuaries projected that the typical male teacher would live to age 84.8. That turned out to be very, very close to what was actually happening, based on the retirement system’s data.
From 2000 to 2006, the actual life expectancy was 83.9 years and from 2004-2010 it was 1.2 years higher -- 85.1 years. The report recommended ratcheting up the life expectancy for that group to 85.7 years.
You can see the actual numbers in this chart, calculated for those who retired at age 65..
|Actual life expectancy||Estimate life expectancy|
|Male state employee||81.4||83.0||82.1||83.2|
|Female state employee||85.2||86.2||86.3||86.6|
Joseph P. Newton, the actuary for the retirement board, emphasized this in followup testimony before the joint Senate and House Finance Committees on Nov. 1.
"When a baby is born, [he or she] will live [on average] 78 years. We don't care because we want to measure when people are receiving pension checks, and they [typically] start receiving pension checks at 65," he said. "When we say the life expectancy we're using is 87, it's for a 65 year old, somebody who has already made it from zero to 65. So now they're expected to live to 87."
Newton said that, based on the April vote of the retirement board, the state is now using 2000 projections instead of a 1994 actuarial table.
We asked Valletta about Newton’s figures. He said he stands by his statement and believes the state should be using the Social Security life expectancy.
He said he understands how the state actuaries calculated their estimate "but I don't agree with it. . . . I don't buy these actuary reports. . . . Whatever numbers they need to get to, they can find a way to get to."
Union official Paul Valletta said General Treasurer Gina Raimondo created the pension crisis when she, in part, used an outdated annuity chart and "raised the mortality rate from 65 to 87" even though life expectancy (as calculated by Social Security) is actually 78.
First, the life expectancy for state workers wasn't 65 when the vote to raise it was taken. It was 82 to 88 (depending on the group).
Second, the board didn't bump the life expectancy up by 22 years. It increased it by 0.3 to 1.1 years, depending on the group, to provide a funding cushion in case life expectancies continue to go up.
Finally, Raimondo didn’t make that decision on her own. She was one vote on the 15-member retirement board, which she chairs. (The board voted 9-6 last April to approve the new life expectancies and lower the expected rate of return on the pension fund’s investment. Only one of the seven public employee representatives voted in the majority.)
Valletta's statement includes a grain of truth -- a 1994 actuarial table was previously used in the calculations and 78 years is close to the Social Security estimates for overall life expectancy for the entire state. But he has omitted crucial facts and chooses to disbelieve the actual data that leads to a very different conclusion.
We rate his statement Mostly False.
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Published: Sunday, November 6th, 2011 at 6:00 a.m.
PensionReformRI.com, "Third Joint House and Senate Finance Committee Pension Hearing on Proposal (Public Testimony)," at the 25:15 mark, Oct. 27, 2011.
Interview, Paul Valletta Jr., spokesman, Rhode Island State Association of Firefighters, Nov. 2, 2011
StateHealthFacts.org, "Life Expectancy at Birth (years), 2007," Henry J. Kaiser Family Foundation, accessed Oct. 31, 2011.
SocialSecurity.gov, "Period Life Table," Social Security Administration, accessed Oct. 31, 2011
Treasury.RI.gov, "Employee's Retirement System of Rhode Island, Actuarial Experience Study for the Six-Year Period Ending June 30, 2010," Gabriel Roeder Smith & Company, April 13, 2011, accessed Nov. 1, 2011
The Providence Journal, "Panel votes to lower its level of expectation," April 14, 2011, Page A1, accessed Nov. 3, 2011
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