Rep Loughlin’s Approach to Resolving Rhode Island’s Unstable Public Pensions
[Anchor Rising, along with many other print and digital media outlets, has received the following “OpEd” from State Representative John Loughlin (R). Rep Loughlin has indicated elsewhere and elsewhen that he is considering a run for higher office in 2010.]
Toward a Federal Solution to Pension Woes
Rhode Island’s public sector and teachers’ pensions are in crisis and it’s not a problem that we can solve on our own. Due to a number of factors, our pension systems carry huge unfunded liabilities. Rhode Island is not unique in this precarious situation. According to the Pew Center for States the total estimated state pension liabilities nationwide are approaching $361 billion dollars. That means as states struggle to meet pension commitments, fewer and fewer funds are available to support education, build our roads and schools and provide tax relief to struggling families and businesses. A Federal bailout or infusion of funds, spread over time, is needed to keep our promises and free us from this system.
But not one dime of Federal funds should go to any state pension system without mandating permanent structural changes to ensure the system is self-sustaining going forward thus limiting the need for taxpayer dollars.
Our current system is nothing more than a legally sanctioned Ponzi scheme. Those contributing to the current system pay those who have retired. To end the current system would mean breaking the funding stream for benefit recipients leaving the state with an enormous bill.
Since our public sector pension’s inception in 1940, the state has not properly funded the system. This, coupled with an increase in lifespan, and a General Assembly, which made benefits increasingly more generous, set the stage for disaster. To make matters much worse, our pension funds are invested in the stock market, which has lost enormous amounts of value in recent months. In a sense, these circumstances, regardless of where the blame lies, have created a perfect storm of financial Armageddon.
At present course and speed, Rhode Island is faced with two very unpleasant outcomes. Either our taxpayers and economic activities will be crushed under the weight of massive new taxes to fund the system, or those who have built there lives, and faithfully contributed to the system, based on the promises made, will have their promised benefits sharply reduced or worse yet be turned away when it becomes time to collect. I was raised to believe that you must always honor your commitments, regardless of the circumstances. In short, promises made – promises kept.
To understand our retirement commitments, it is necessary to differentiate between the groups of public sector employees and teachers involved. The first group is the retirees, those no longer working, but drawing their earned retirement benefits. The second group is comprised of those employees who have become “vested” in our retirement system. These are the teachers and employees who have worked at least 10 years and have now been promised specific retirement benefits when they become retirement eligible and ultimately retire. The next group consists of those teachers and employees that have not yet been in the program for 10 years – thus not vested. The last group is made up of those employees who have yet to be hired but will be in the future.
Fundamental fairness dictates that we treat each of these groups differently. Remember – promises made, promises kept. I believe nothing we do should have any effect on the promises made to those who have already retired and those who are retirement eligible. Furthermore, the promise made by vesting must also be honored, respected and adhered to. How can we say to a valued teacher or employee that has contributed to a plan for ten, twenty, or nearly thirty years in accordance with the terms the state agreed to, that they now must work a decade longer and receive a reduced retirement? In addition to quite possibly being illegal, the broader issue is that of moral fairness.
We have a moral obligation to craft a solution that structurally changes the way we provide retirement benefits in a way that our taxpayers can afford while honoring our prior commitments to retirees and those vested employees.
One very compelling option calls for a 401K style plan similar to the Federal Government retirement program. This type of plan features a very small-defined benefit coupled with a 401K style self-directed and fully portable plan. But any plan for newly hired teachers and state workers needs to include many of the measures currently being proposed by the legislative Pension Study Commission, including longer working times and reduced or eliminated cost-of-living-allowances to make the system self-sustaining going forward.
In the past year, our federal government has spent $1.5 trillion ($1,500,000,000,000) in order to stimulate our economy and bailout Wall Street – is Main Street not worth $361 billion over a period of years? An infusion of Federal funds would stabilize retirement systems in all fifty states. This would guarantee the promise of an honorable retirement to a generation of teachers and government workers while creating a system requiring almost no taxpayer funds going forward.
This would be a bailout not just for pension recipients but for all taxpayers and future generations. This type of bailout doesn’t reward Wall Street bankers, but puts our states on firm footing going forward with a fair system that we can all afford, while at the same time honoring our collective promises.
Ultimately, we will pass on a legacy of honor and affordability in a context where we as a society kept our word. Integrity is no small legacy to pass on to our children.
State Representative John J. Loughlin II
District 71 Little Compton, Portsmouth, Tiverton