February 17, 2011

WRNI - Raimondo Says Pensions Can be Cut

Marc Comtois

WRNI's Ian Donnis reports:

State Treasurer Gina Raimondo says she doesn’t believe current pension recipients are legally shielded from possible cuts to their pensions. She outlined her view during a taping today of WRNI’s Political Roundtable, which airs tomorrow at 5:40/7:40 am. Scott MacKay asked Raimondo, as a lawyer and financial expert, whether pensioners currently receiving an annual pension of $80,000 or $90,000 have a property right to their pensions. “If push comes to shove, what happens?” MacKay continued. ”Do we go the United Airlines situation, where they take a haircut?” Here’s how Raimondo responded to the question of whether pension recipients have a property right: “I don’t believe so. That hasn’t been established in law, and I don’t believe they do.”

...Raimondo blames a piecemeal approach. “The reason we’re in this mess” she says, “is because every year we chink away at the problem — let’s tweak the COLA a little bit, let’s tweak this, let’s tweak that. We got to do the whole system. This is not about taking benefits away. This is about securing retirement security for everyone . . . . It is a fallacy to think that those benefits will be there if we don’t fix this system. And the system that we have today calls for a billion dollars to come out of the budget in about 10 years to pay these benefits. I cannot look in the eye of a state worker and promise that that will be there.”

This isn't (or shouldn't) be about "hating state workers" or whatever, it's about fiscal reality.

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"Here’s how Raimondo responded to the question of whether pension recipients have a property right: “I don’t believe so. That hasn’t been established in law, and I don’t believe they do.”"

Holy moses.

"It is a fallacy to think that those benefits will be there if we don’t fix this system."

Indeed, it is a fallacy.

It cannot be said enough: shame, mega shame on those elected officials who made generous promises which could not be fulfilled (retire and start collecting after 20 years???) and which THEY THEMSELVES FAILED TO FUND.

Posted by: Monique at February 17, 2011 6:18 PM

Admitting the problem? Fiscal responsibility? The progressives must be crapping themselves right now for having ever supported her.

If Tom Sgouros had been elected, we'd be discussing which taxes to raise right now to push the problem into the future another 10 years.

Posted by: Dan at February 17, 2011 7:22 PM

I like "hating the state workers".

Posted by: Warrington Faust at February 17, 2011 7:36 PM

Colorado, amongst a few, has already cut benefits for those already receiving pensions. That is not a misprint.
Sleep tight union and crony pigs.

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A showdown is looming over whether commitments made to retirees by government pension funds can be scaled back in dire economic times.

Facing shortfalls, some public pension funds are responding by paring back payouts pledged to retired workers. Earlier this year, pension funds in Colorado and Minnesota curtailed annual cost-of-living increases.

"No matter how draconian you got on the new hires, you ran out of money" if you didn't cut benefits to current retirees, said Meredith Williams, chief executive of the Colorado Public Employees' Retirement Association, with $34.2 billion in assets.

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Nathan W. Armes for The Wall Street Journal

Retired special education teacher Kathy Ratz is opposed to legislation to reduce the pension benefits to current retirees that was proposed by Brandon Shaffer, the Colorado Senate president.

In February, Colorado lawmakers passed a bill that reduced the pension system's cost-of-living adjustment from a fixed 3.5% a year to a maximum of 2%—but possibly less for current and future retirees. The new law also increased contributions from employees and employers. For example, retirees who were expecting a 3.5% increase in cost-of-living adjustments this year will receive no increase.

In response, Colorado and Minnesota have been hit by lawsuits filed by retirees, who claim the changes violate state law. Those retirees have "lived up to their end of the bargain, and the state is not living up to theirs," says Stephen Pincus, a Pittsburgh lawyer representing plaintiffs in both states.

The legal fight could decide whether financial commitments to retired public workers are sacrosanct, as many employees have long assumed.

While many retirees from the private sector have seen retirement benefits weakened in recent years, retirees at public pension funds largely have avoided such cuts.

But investment losses, reduced contributions and benefit boosts are making it far more costly for public pensions to live up to their obligations. To replenish assets, many pensions have reduced benefits to new hires and increased contributions by employees and employers, says Ron Snell, director of the state-Services division for the National Conference of State Legislatures.

Far fewer funds have taken the more-drastic approach of curtailing benefits to retired public-sector employees. The outcome of the Colorado and Minnesota lawsuits could embolden other pension funds to make their own cuts, though the legal landscape varies from state to state.

"The lessons of Minnesota and Colorado will be interesting, but they also won't be considered absolute guidance," says Keith Brainard, research director for the National Association of State Retirement Administrators.

The move to scale back cost-of-living increases in Colorado gained momentum last year following a study that estimated the Colorado Public Employees' Retirement Association would be out of money in around 30 years, assuming its investments generated a 7% annual return.

Colorado Gov. Bill Ritter, a Democrat, signed the bill into law without fanfare, says state Senate President Brandon Shaffer, also a Democrat. "We didn't celebrate this because we know that there is real pain associated with the changes we enacted through this legislation," Mr. Shaffer says.

According to a benefits booklet provided to Colorado retirees, the pension fund said it "will increase your benefit each year by 3.5% compounded annually."

Kathy Ratz, a 63-year-old retired special-education teacher who lives in Golden, Colo., says she was "totally blindsided" by the extent of the change. She gets a $54,000 annual pension and has $89,000 in savings with her husband, she said. He receives less than $1,000 a month in Social Security.

"I started out thinking I wanted to do my share to help, but I think this is way beyond helping," she says. "What we're going to do is sit down and put more into savings than we have."

Mr. Pincus's law firm has said in court documents that the new law could mean a loss of more than $165,000 in benefits over 20 years for a retiree who received an annual pension of $33,264 in 2009.

The retirees point to a 2004 opinion written by then-Attorney General Ken Salazar, now secretary of the Interior in the Obama administration, that a retired public-sector worker's pension "becomes a vested contractual obligation of the pension program that is not subject to unilateral change of any type" by the legislature.

Seeking to dismiss the case, the defendants, which include the Colorado pension fund, contend that "to claim that a cost-of-living adjustment can never be adjusted defies law and logic."

The defendants also highlight the exigencies of financial stress: "There can be no dispute that preserving the solvency of the Public Employees' Retirement Association is a legitimate governmental interest."

The Minnesota lawsuit came after the state legislature passed a bill in May that reduced retirement benefits from a 2.5% annual increase to between 1% and 2%, depending on the pension fund.

Mary Vanek, executive director of the Public Employees Retirement Association in Minnesota, which reduced the cost of living adjustment from 2.5% to 1%, said potential lawsuits were a concern considered amid the rollback. "We weren't letting that override our fiduciary concerns," she says.

Some experts say that if judges decide in favor of the retirees, public pension funds will have to find another potentially painful way to bridge the funding gap.

"If benefit promises can't be adjusted, then contributions are going to have to go up a heck of a lot," says Olivia Mitchell, director of the Pension Research Council at the Wharton School of Business in Philadelphia. "It's not likely anybody is going to win here."

Posted by: Tommy Cranston at February 17, 2011 7:59 PM

This is Raimondo's first chance to establish her own identity, separate from the party and union hacks who put her in office. If she can rise above the sewage of her party, she stands a chance at a great political career.

Posted by: BobN at February 18, 2011 7:02 AM

I voted for her, and haven't seen anything yet that would stop me from voting for her again. She could probably get elected governor in '14 if she goes in that direction (and would get my vote if Chafee screws up).
Of course, the hosannas posted above mine will be forgotten the moment she accepts one penny from Emily's List. She's also an SSM supporter, too, by the way.

Posted by: bella at February 18, 2011 7:35 AM

I didn't say she could be Governor, and she has a long way to go and a lot of cleaning up to do before gets any support from my side.

Like many of my misguided friends, she is smart at business and finance but has never done any serious thinking about the deeper issues of American principles or the proper role of government in society.

Posted by: BobN at February 18, 2011 8:04 AM

Don't be fooled by this woman.
Her game is to "talk" the talk for 4 years and, like Caprio, accomplish "nothing".
Then she, like Caprio, will run for Governor touting her "bravery and courage" for empty words. Meanwhile, behind the scenes the unions will be given the "wink and nod" that they won't be touched. Just like Caprio.

Posted by: Tommy Cranston at February 18, 2011 8:21 AM

Look on the bright side: RI provides an endless supply of material for people like Steve Malanga to write about, and lets every other state say, "hey, at least its not as bad here as it is in Rhode Island."

Posted by: John at February 18, 2011 1:42 PM

Ohmigod!!bella had a productive thought.
Yes,the minute Raimondo takes penny one from Emily's List she's garbage.

Posted by: joe bernstein at February 18, 2011 5:26 PM

Joe, you'll be glad to know that as an extra added bonus, she'll win back Democrats who defected to Chafee, too.

Posted by: bella at February 18, 2011 7:35 PM

This isn't (or shouldn't) be about "hating state workers" or whatever, it's about fiscal reality.

This isn't (or shouldn't) be about "hating the highest income earners" or whatever, it's about fiscal reality.
Let's go back to the 70% tax on the highest income earners in the 50's when we had a robust middle class. That would be a start towards funding the costly federal education mandates that local property taxpayers have had to shoulder all these years. Let's not take the easier course of blaming neighbors who are performing the tasks such as teaching, policing, firefighting, emergency medical services, and all the other services that enable private commerce to operate in a safe, reliable and profitable way. Let's tax those who are taking the lion's share of wealth out of our economy without contributing to it's healthy continuation. They too will be better off in the long run. A robust middle class based on saving and not credit is the best buttress against the recessions that are certain to come again and again. Making scapegoats out of labor unions and workers will only divert us from fiscal stability and only help those who have the selfish goals of the very rich and the short term ambition of populist politicians whose names may change, but who are the same snake oil salesmen who have taken advantage of the fearful, the angry, and the stupid.

Posted by: Phil at February 18, 2011 7:52 PM

Only a person who has a religious faith in the benevolence and expert competence of government could believe what Phil wrote.

What Phil wants has been tried many times in many countries and has ALWAYS failed.

But some people, blinded by the cult of their ideology, will never learn.

Posted by: BobN at February 19, 2011 11:21 AM

Phil is right.

Posted by: michael at February 19, 2011 1:09 PM

Oh, thanks for setting us all straight, O arbiter of all things true and beautiful (in Lefty-Unionist Bizarroworld).

Posted by: BobN at February 19, 2011 1:59 PM
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