October 15, 2011
Pension (Half) Reform?
So the pension reform proposal which General Treasurer Raimondo and Governor Chafee have been working on was leaked to the Providence Journal's Kathy Gregg late Thursday. Congrats to Ms. Gregg for landing this scoop. Check out Andrew's post for the projected legislative scheduling of the actual bill (still being finalized), a round-up of recent press coverage and a very good question for the Governor as to process.
The proposal contains some very good elements. It also, however, it contains some unhelpful ones. Perhaps the biggest in this category is that the ball doesn't appear to have been advanced much with regard to that magic moment at which an employee (currently eligible to retire) can retire and start collecting.
... there would be no change for employees eligible to retire by June 30, 2012.Those at least 52 years old, with at least 10 years of work behind them when the new rules kick in, could retire at age 62. Workers with at least 20 years of service, who were within five years of retirement, would be allowed to retire early, with a reduced benefit.
But for most others, the retirement age would inch up to the Social Security retirement age, which currently stands at 67.
For some groups — such as state and local police and firefighters, judges, correctional officers and nurses at the state hospital — the rules would be different.
For example, state and local police could retire and start collecting a pension at age 55, after 25 years of work. Anyone who left the job with less than 25 years of service would have to wait until he or she reached Social Security retirement age to collect. But there would be an early retirement out for those who were already 45 years old and who had worked at least 10 years when the new rules kicked in. . They would be allowed to retire at age 52.
They would be guaranteed a pension equal to 2 percent of their highest five-year salary average for each year of work, a potential 50 percent at the end of a 25-year career.
Another unhelpful element is that the only adjustment made to current retirees is a suspension of the COLA. This is purportedly temporary, until the pension kitty hits 80% funded. (Many of us are trying without much success to see the "hardship" and "sacrifice" of receiving a defined pension which was generous to begin with and subsequently boosted by COLA's for the last one to thirty plus years, not to mention being collectable at an age that had no relation to the real-world concept of "retirement age".) And when the COLA does return, it would apply to the first $35,000 of pension, not the first $12,000, as had been discussed.
Perhaps these elements explain the most disappointing and alarming aspect of this pension reform proposal. In a separate ProJo article yesterday, we learn that it would result in
a potential $3 billion reduction in the state's $7.3 billion in unfunded pension liability.
So the reform would address less than half of the shortfall?
Am I missing something? How could I be more skeptical of this proposal than the Don of Dubiousness, Tommy Cranston?
Could be better but a good start.
Without reform, payments - on behalf of state employees and teachers only, keep in mind; local pension shortfalls are not included in any of this - to the pension fund will need to rise by $600 million next year and $1.2 billion next (that's the increase only!). With this proposal, wouldn't those increases still be $300 million and $600 million respectively? Is this a shock-and-relief thing? Are we supposed to be happy that they would be cut in half? But that wouldn't solve the very pragmatic problem that, from everything that has been reported, these amounts would be no more affordable than the original amounts.
This is an open solicitation for knowledgable feedback. In other words, please oh please prove me wrong.
For decades, Rhode Island's elected officials made extremely generous promises via a decision process that was remarkably free of the taint of foresight, responsibility, equitability and rational thought of any kind. Simultaneously, they raised our state and local taxes to the fifth highest in the country and committed that revenue elsewhere.
How does this pension reform proposal adequately address the situation?
"Don of Dubiousness"
LOL. You made my day with that moniker.
We will obviously await the verdict of actuarial experts like Gary Sasse and Dan Beardsley.
However, it appears undeniable that MAJOR changes are afoot:
1. The COLA's are G-O-N-E. Likely for a generation-if not forever.
2. Cops and firemen go from retiring at ages 39-44 to 55.
3. Teachers and state workers go to 67-it was as young as 50 just 5 years ago.
5. The "disability" scam is gutted. Disabled (sic) workers now get reduced to their normal non-disability pensions upon reaching retirement age.
6. Most importantly, the entire pension accumulation system as we have known it ends forever on July 1. Instead of getting 2.5% per year accumulation starting July 1 all workers, whether brand new or 30 year veterans, will get 1% accumulation per year. That's a 60% cut-for everyone.
Now I would prefer putting them all on SS plus a 3% 401k and that's IT. But this plan, if I am reading it correctly gets filed as Not Too Shabby.
The unions have already begun pressuring Democrat legislators NOT to support the current pension reform measure. Will the GA water down the reform legislation so that they can put their name on it as being in favor of reform, but so diluted that it accomplishes nothing?
As voters we need to pack the Senate & Representative Galleries Tuesday and bring signs telling our elected officials "Support Reform NOW!" If we don't, reform will be something the unions can manipulate by bending the GA to their will.
Occupy the State House!
Posted by: Mark at October 15, 2011 9:41 PM1. Note that the COLA's return when the pension is 70% funded... however it gets there. Tax increases can do that pretty quickly.
2. And apart from that, there are going to have to be tax increases, I'd say, whether now or in the future. That 3.75% that current employees will be paying into the pension system isn't enough to get the system solvent, and the plan promises a 1%-of-payroll taxpayer contribution to the 401(k)s, to boot. (For teachers not in the Social Security category, it's a 3% taxpayer contribution.)
3. There's a reamortization component, which increases the cost to the taxpayer over time.
The upshot, on first glance, is that the "pain" is being borne mainly by new hires and by taxpayers... on the latter count, we just won't see the pain as a direct consequence of this plan. And this is before the General Assembly has its diluting say, and then again, before the judiciary gets its own whack at the mole. I'd wager that the increased retirement ages are in this proposal specifically for the purposes of being weeded out during legislative "compromise."
I'm open to contrary arguments, but it seems to me that my cynical predictions are being pretty well proven accurate.
Posted by: Justin Katz at October 15, 2011 9:47 PMI know I'm being naive when I say this but imagine if there are legislators who get their final copy of the proposal and don't believe it goes far enough, so they offer amendments to save even more money! Imagine that!
I think if Gordon Fox and TPW were going to show any leadership on this whatsoever, they would only accept amendments that are "zero sum or positive" in their changes. If you want to change one part of the proposal that moves the deficit in the wrong direction, then you must also include in the same amendment how you will pay for the loss. If you want to change some part of the proposal and your change will cost $10M, then you must also offer another way to recoup that $10M. This is how Fox and TPW could truly show leadership in the discussion.
Posted by: Patrick at October 15, 2011 10:12 PMRoll the benefits back. Repeal the mid-80s legislation. (OPEB) Just one item that represents extraordinary costs that appears to be missing from the package.
Posted by: Lee at October 15, 2011 10:27 PM