Pension Disbursements After Only Twenty Years of Service – Yet Another Insanity of Rhode Island Government

The question below is spurred by this excellent OpEd in today’s ProJo.

Rhode Island’s pension picture is getting increasingly alarming. Soaring unfunded liabilities are pushing the state toward bankruptcy, and putting a mounting strain on both state and local budgets. …
Similarly, the League of Cities and Towns pushed a plan to require higher contributions from the employees themselves, higher health co-pays, a higher retirement age (the astonishingly early and well-compensated retirements of some public employees outrage the public), and the requirement of more years of service. Governor Carcieri proposed a similar plan, one that would, in addition, end cost-of-living adjustments. These are all good ideas.

Setting aside for a moment the question of defined benefit versus defined contribution (which, believe me, I understand, is another enormously fatal flaw in Rhode Island’s public pension systems), where did this crazy idea of handing out a pension check after only twenty years of employment come from? On that basis, pension checks could and apparently do go on for easily double the original employment period. Where is the parallel in the private sector? [correction in response to Michael’s comment] What percentage of private sector pension checks begin after twenty years of service? Is this when our grandparents and parents began receiving pension checks? At age 45 after only twenty years of work? On a more pragmatic front, how is this remotely sustainable?
In order to simultaneously save the public pension systems and bring retirement benefits more in line with those of the private sector (i.e., more in line with the retirement benefits of those who fund public pensions), at a minimum, all of the reforms recommended by the League of Cities and Towns, as well as elimination of the fixed COLA, need to be implemented. We would be remiss if we did not also put on the table for consideration the suggestion by former Cranston Mayor Steve Laffey that we simply write everyone a check reimbursing them for their contributions and “convert all state pensions to self-directed IRAs”.
Whatever course we take to reform (save) the public pension system, the gross irresponsibility of the pension-check-after-only-twenty-years has to end and end now. For everyone, including “retirees”. Your twenty years of service is acknowledged and vested but the pension checks stop until you reach the age of 65.
Will the courts who hear the inevitable lawsuits rule against the state’s action? Possibly, though not definitely. If they do, so be it. At least we’ll know, when the pension checks of retired public workers as well as the paychecks of current ones start bouncing, that Rhode Island did everything in its power (… other than elect responsible politicians for the last three decades) to try to fix the problem.
Phrased another way, the crash of public pension systems in Rhode Island can be a controlled or an uncontrolled one. What’s not in doubt is the violent nature of the landing, now cast in stone by the (in)actions of politicians from one party who promised with a crooked smile extremely generous pension benefits but then did not see fit to fund those benefits so as to make good their promise.

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michael
11 years ago

“Setting aside for a moment the question of defined benefit versus defined contribution (which, believe me, I understand, is another enormously fatal flaw in Rhode Island’s public pension systems), where did this crazy idea of handing out a pension check after only twenty years of employment come from? On that basis, pension checks could and apparently do go on for easily double the original employment period. Where is the parallel in the private sector?”
Funny, I was at a party last night talking with an executive from Textron. She’s counting the days until she has twenty years so she can get her pension and severence. She didn’t tell me the exact numbers, but the smile on her face said a lot.

John
John
11 years ago

However vivid, anecdotes do not a data- driven conclusion make. Even a cursory check of the data will show you that (a) defined benefit plans now cover an ever shrinking minority of private sector employees, not just in the USA, but across most of the OECD; and (b) While under some of the remaining DB plans you can, indeed retire after 20 years service, the annual pensions are much reduced from those available to employees reaching full service — 30 years or more. Last but not least, had it occurred to you that the woman from Textron might have a few other things on her mind, like the fact that reaching 20 years and taking a much reduced pension is still preferable to what would happen to here in case, (a) Textron goes into Chapter 11 and the PGBC takes over (and sharply reduces) her pension; or (b) Textron is taken over and she is fired before reaching her 20?
Trust me, Michael, there is much more to the story than what you have posted. And being the smart guy I think you are, you know it.

michael
11 years ago

True, John, there is always much more to every story. Much like the story of my pension. If I retire after twenty years it is at a much reduced percentage than if I go the maximum, (70%) at thirty-two years.
There’s a lot on my mind as well, John. Will my body be able to withstand twenty more years of punishment? Will the state go broke? Will somebody like Steve Laffey win an election and simply do away with defined benefit pensions? Will the next mangled body I try to put back together be the one that makes me crack?
Nineteen years ago the City of Providence advertised in the Providence Journal for the position of firefighter, describing in full detail the benefit package. Guaranteed benefits. Not “the union,” the city. The city hired me. They put together a package designed to attract the most qualified applicants. Thousands applied. Dozens made it. I gave up a lot to take the position. Job security, health care and a pension were 1-2-and 3 on the list that led me to switch careers.
Twenty years is looking better all the time. Much the same as my friend from Textron.

kevin
kevin
11 years ago

you want to run the state like a business right? ok, where is my frequent flyer miles, christmas bonus, stock options, and business getaways? You can’t have it both ways, when business was good no one complained about the unions, who were the ones paying your outrageous rates for services and products. Now that the economy sucks and you have to lower your prices, and are not making the salaries you used too, you expect the unions to do the same. When you were doing well, I still didn’t get a raise but still had to pay your prices!

bull
bull
11 years ago

A big difference between public and private plans is the unreduced AGE at which a pensions is payable, and this has nothing to do with the # of years of service.
Public plans usually offer unreduced pensions at age 55 (sometime 50 or less for safety workers), while private plans usually require age 62 (or 65). For example, for 2 employees (one Public & one Private) starting work at age 25 and working for 30 years, the public sector employee can get an unreduced pension (based on the formula factor for 30 years of service), while the (age 55) retiring Private sector worker would get HIS formula benefits (also based on 30 years of service) reduced by about 5% per year …or (62-55)x5%=35% assuming the EARLIER full retirement age of 62.
The private Sector worker is not being treated unfairly … Social Security does this too.
It’s that the TAXPAYERS are being suckered into paying this UNREDUCED benefit at too young a starting age for the Public Sector employee. Doing so almost doubles the cost of the pension EVEN IF THE FORMULA FACTOR WERE THE SAME.
But, since the formula factor for public sector workers is ROUTINELY TWICE that of private sector plan, we have a SECOND doubling of cost.
THIS, plus COLAs, pay spiking, and the inclusion of vacation & sick pay and sometime miscellaneous “allowances” in pensionable “compensation” is why the REAL COST of the pension for a Public sector worker is typically 4 times the cost of a similarly situated Private sector worker.
It is SOOOO past due for a rollback of Public Sector pensions, and for CURRENT, not just new employees.

Michael Lies
Michael Lies
11 years ago

[Pseudonymous George Elbow comment deleted—JK.]

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