March 13, 2009

Curious Developments in Pension Politics

Justin Katz

For whatever it's worth, the "study commission" looking at pensions for the Rhode Island House approved a plan to increase the minimum retirement age to 65, and although it didn't vote to eliminate cost of living adjustments (COLAs), it did suggest tying them to inflation data.

The curious result came during the vote to apply changes to current employees who are vested, but not yet eligible to retire (emphasis added):

The union leaders, predictably, were in the minority on each vote taken last night, arguing throughout that no one who has put in the minimum 10 years of service that entitles them to a pension — also known as vesting — should be touched by any mid-career changes in the retirement package they have for years been led to expect. On many of the votes, they were joined by Rep. John Loughlin, a Tiverton Republican who has signaled some interest in running for Rhode Island Democrat Patrick Kennedy’s 1st District Congressional seat.

What to make of a panel on which Rep. Timothy Williamson (D-West Warwick) and Rep. Timothy Williamson (D-West Warwick) vote for a stronger line than Mr. Loughlin?

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"One of the first votes of the night was described by one member of the panel after another as the hardest, because it entailed a decision on whether or not to apply the pension changes to current workers, many of whom have worked for the state for a decade or more but are not yet eligible to retire. Several, including Loughlin, talked about “fundamental fairness.”"

Yes. What is fundamentally fair about the state having offered some of the most generous retirement benefits - benefits that far exceed those in the private sector?

While they should have gone farther on the COLA, this panel is to be applauded for their 12-4 vote to return some fundamental fairness to the pension system.

Posted by: Monique at March 13, 2009 7:36 AM

It's all smoke and mirrors. The House will pass it with a bunch of publicity and it will quietly die in Paiva-Weed's chamber ("too divisive").
The whole thing is as spontaneus as a WWWF wrestling match. You will notice the tell-complete silence on Crowley's blog.
Mark my words. March 13. I'm saving this post for an "I Told ya so" in late June.

Posted by: Mike at March 13, 2009 9:42 AM

Justin: The Projo got it wrong. The commission didn't approve any of those recommendations.

Posted by: Pat Crowley at March 13, 2009 3:06 PM

Sophistry Pat. They didn't technically "approve" them-that will be done at a later.
You DO have the word that they ultimately will be shot down-which is why you, Reback and the rest of the unionists are not saying a single word against this choreographed charade.
Do I have it right?

Posted by: Mike at March 13, 2009 7:11 PM

If Loughlin had any ambitions to run for statewide office, he lost some votes and $$$ from fiscal conservatives. Who wants a republican who votes more pro union that the House Demo leadership?

Posted by: Stay in Tiverton at March 13, 2009 11:13 PM

Stay in Tiverton,
Is that how you define a Republican, i.e. someone who is anti-union? That would make Hitler and Stalin Republicans. It also shows a very small tent, hardly big enough to hold the four Republicans in the Senate.

Posted by: 0ldTimeLefty at March 14, 2009 7:39 PM

Did anyone catch the question raised during the hearings regarding the 8.25% earnings assumption?

Specifically, the question was raised as to whether or not the 8.25% earnings assumption made sense and whether or not we had met that mark in the recent past.

The answer was "NO, we have NOT earned that rate in at least the past 10 - 12 years".

I think I heard Bob Walsh groan, as that put to rest his ludicrous "Walshian Assumptions" crap that certain people swallow hook, line and sinker without challenge.

Indeed, I think it's time for Andrew to dust off his famous Pension Simulation model and show us what the numbers look like today. Show us what an employee Contributes vs what the employee Receives as a gauranteed benefit regardless of what the market earns or loses.

Does anyone ever wonder why the Federal Gov't, with all the resources at it's disposal, requires a Retirement age of 65 or higher (yes there are exceptions, but in general it is 65) before one begins collecting Social Security, but a little state like Rhode Island thinks it can somehow afford to allow public employees to retire in their 40s and 50s?

What is there to "study"? The answers are no brainers. Increase the minimum retirement age to 62 or 65, eliminate the automatice COLA and move to a combination of Defined Benefit and Defined Contribution.

But alas, we will do what we do best, which is to "put everything on the table, study it, talk about it and set up a commission to review it" all in an effort to kick the can down the road.

Posted by: George Elbow at March 15, 2009 8:31 AM

From today's front page projo I note the following.
Even with the admittedly very substantial pension reforms approved by the Commision pension costs will STILL escalate by $400 million by FY 17. Just not the $500 million if nothing was done!
Pity the poor progressives. They have killed the golden goose, now they are crying because no more eggs are coming.

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Comments 29| Recommend 7
Unions decry proposal to prune pensions

01:00 AM EDT on Monday, March 16, 2009

By Katherine Gregg

Journal State House Bureau

PROVIDENCE — Union leaders are denouncing as illegal and “almost criminal” the pension-benefit overhaul that a House-appointed panel recommended last week for 23,700 state employees and public school teachers to save tens of millions of taxpayer dollars before the state’s crumbling pension system hits a breaking point.

Recommending a move to age 65 as the new retirement age, the panel also voted to limit but not fully eliminate annual cost-of-living increases for future retirees, withhold them until the pensioner is at least 66 years old, and base future pensions on an employee’s five-year salary average, instead of the three-year average currently used.

It also recommended the adoption of a “hybrid” pension plan for new employees. It would combine a much-reduced version of the current defined-benefit plan that pays Rhode Island’s public employees up to 80 percent of their earnings, with a 401(k)-style plan in which contributions are fixed, but the size of the benefit depends on how much that money gains or loses in the investment market.

In a series of interviews after Thursday’s votes, the state’s union leaders voiced frustration and anger that the panel — on which several of them sat along with lawmakers and private-sector lawyers and accountants — did not limit the suggested cutbacks to new and unvested workers, meaning those who have not worked the minimum 10 years required for a pension.

“I think what those people did was almost criminal,” said J. Michael Downey, president of Council 94, American Federation of State, County and Municipal Employees.

“We got hurt, so I am going to feel better if other people get hurt, too? I don’t like that,” said state AFL-CIO secretary-treasurer George Nee, of the mid-debate comparisons last Thursday with what the national financial meltdown has done to the retirement expectations of private-sector workers.

“The stock market has caused a temporary problem and that commission is making recommendations that will alter the lives of all of those employees forever,” asserted Marcia B. Reback, president of the Rhode Island Federation of Teachers and Health Professionals. “They created a pension that is so tiny compared to the size of the contributions that the employees make as to make it laughable.”

Even the chairman, state Rep. Timothy Williamson, was stunned at how swiftly the cost-cutting proposals — aimed at saving taxpayers as much as $100 million annually — sailed through his commission on a series of largely 12-to-4 votes that pitted the majority against the union representatives and their unexpected ally, Republican Rep. John Loughlin, of Tiverton.

Williamson expected hours of debate over three to four tense nights at the State House. To his surprise, it was over in two hours, a development that Williamson, D-West Warwick, attributes to a recognition of just how serious the situation is.

“The structural foundation of our pension system is crumbling,” he said.

Comparing what is happening now to the signs of distress that led up to the state’s devastating 1991 banking crisis, he said: “People remember what happened with the RISDC situation, when that crumbled and what happened to people’s money. They could not get paid. I don’t want to indicate that it is imminent, because it will happen over a period of time…[but] the General Assembly wants to ensure that you have a pension,” he said. “Now, it might be less that what you had originally bargained for. You may have to work longer, but at least that benefit will still exist versus the alternative of not having a pension at all.”

State workers and teachers pay among the highest contribution rates in the nation at 8.75 percent and 9.5 percent of pay, respectively. But taxpayers have had to pay more than 2 1/2 times as much to keep the promises state leaders have made these public-sector workers, including retirement at any age after 28 years’ work and guaranteed 3 percent compounded annual cost-of-living increases.

The average pension is not huge: $25,065 for a retired state worker, $42,581 for a retired teacher as of June 30, 2008.

But with retirees living years longer and the stock market failing, over the course of a decade, to produce the assumed 8.25 percent average rate-of-return, taxpayer contributions have gone up relentlessly.

Compounding the problem: the value of the state’s pension portfolio sank 25 percent in the last year.

Even if the financial markets recover next year and the state logs an 8.25 percent gain every year from now on, General Treasurer Frank T. Caprio is predicting this year’s required $370.9-million taxpayer contribution to state employee and teacher pensions will swell — unless something is done — to $836.3 million by 2017.

Williamson said he believes that warning from Caprio’s staff is what paved the way for Thursday night’s swift action — with very little debate — on each move that he proposed, as a starting point for discussion. All but the newest state workers and teachers can retire today at any age after 28 years; newer workers must work 29 years and be at least 59 to draw a pension.

Imposing an age 65 threshold on everyone except those already eligible to retire as of July 1 would shave $71.4 million off the cost, according to the state’s actuaries at Gabriel Roeder Smith & Co.

No other alternative comes close. According to their analysis, an age 65 requirement would cut the cost of teacher pensions alone by $47.5 million, from $245.4 million next year to $198 million, while limiting the move to new and unvested employees would save only $17.9 million; an age 59 threshold, only $8.2 million.

But Reback says she does not trust the stark forecast for 2017: “I think it was alarmist to get the outcome that they arrived at.”

What happens next is anyone’s guess. The pension-study commission is on call until after the state’s actuarial consultants tally up all of the potential savings and the proposal is translated into legislation and given to the House Finance Committee for hearings and debate. Every detail is subject to change, including the trigger date for any changes.

Reback said: “There are 12,000 very angry teachers and 11,000 state employees who are very angry. The members of their families are very angry and they are going to express their anger. I imagine they are going to be in touch with their legislators and they are going to tell their legislators how upset they are.”

Republican Governor Carcieri has proposed an alternative: make 59 the minimum retirement age, and eliminate the 3 percent compounded annual COLAs for all new retirees, except those already eligible to retire.

Posted by: Mike at March 16, 2009 8:46 AM
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