Leading up to Thursday’s debate over legislation to overhaul Rhode Island’s pension system, unions representing state employees pushed back hard. One of the questions they asked was "What’s the rush?"
That theme came up during the Nov. 13 edition of WJAR-TV's "10 News Conference" when Jim Taricani asked Philip Keefe, president of the Service Employees International Union, Local 580, whether he agreed with General Treasurer Gina Raimondo that there is a pension funding crisis.
"I don't think there's a crisis," he said.
"Because there's still $7.7 billion in the fund. This fund is not going to empty out tomorrow," he said. "By the treasurer's own information that she provided to the advisory panel, . . . if they made no changes whatsoever, the plan still had enough money to go forward for approximately the next 16 years.
"So I've been advocating right along -- let's not rush this through. This is a problem that's been in the making for two decades. And now we're going to try to solve it in two weeks?"
In fact, the state has been trying to solve the problem for several years. But we were interested in whether the state employee pension plan is destined to run dry in 16 years -- around the year 2027.
We asked Keefe for his source and he referred us to Raimondo's June 2011 report, "Truth In Numbers: The Security and Sustainability of Rhode Island's Retirement System." On Page 9, it says a Boston College study said, "Rhode Island's retirement plan for state employees and teachers could run completely out of assets between 2019 and 2023 (much sooner than most public plans in other states)."
That's 8 to 12 years, not 16.
To explain the variation, we looked at the full Boston College study, "Can State and Local Pensions Muddle Through?" dated March 2011 and written by experts at the Center for Retirement Research.
It predicts that the pension fund will run dry, and all the money that current employees had paid into their retirement system would be lost, in:
* 12 years (in 2023) if the system remained unchanged and the state's investments earned 8 percent;
* 11 years (in 2022) if the state's investments earned 6 percent;
* 8 years (in 2019) if the pension fund were frozen for existing employees and retirees, new workers were excluded and the rate of return was 6 percent.
The end could come a lot sooner. The actual annual rate of return during the last 10 years has been 2.28 percent after fees and administrative expenses.
We sent an e-mail asking Keefe why he said 16 years when the report he was citing said 8 to 12 years. He didn't respond.
So what would happen if the fund ran out of money?
The state is legally obligated to pay pension benefits. There would be no income from investments to cover those payments. The money contributed by current state employees would be used to pay retirees. The state would have to pay the rest out of the general revenue budget, so taxpayers would be funding retirees on a pay-as-you-go basis.
Philip Keefe said that if no changes were made to the state pension plan, "the plan still had enough money to go forward for approximately the next 16 years."
But the report he cites as evidence states a range of 8 to 12 years, not 16. And even that projection may be optimistic because the report assumes that the state will be making 6 percent to 8 percent on its investments, far higher that the rate of return over the last 10 years.
His time frame is so far afield from the report he says he was citing, we rule his statement False.
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