The Unvarnished History of Rhode Island’s Short-funded Public Pensions, by John
Copied below is an excellent analysis compiled by John (under this post). To it, I would append one item – an additional culpable party: decades of elected officials who possessed the power to implement realistic benefits for tens of thousands of public employees and chose, instead, to further their own selfish political ends by making empty, grandiose promises.
Dear teachers and other public sector union members:
Too many of you are undoubtedly looking at each other over drinks these days, and trying to make sense of what our Democratic General Treasurer is saying.
Let me help you out.
1. Your union leadership has, over the years, negotiated some of the nation’s best pension and post retirement health care benefits for you.
2. Your union leadership has, over the years, agreed to have you contribute some of the nation’s highest percentages of your pay (relative to public sector employees in other states) for these benefits. Given the relative generosity of these benefits, that makes sense. So far, so good.
3. At the same time, your union leadership has, over the years, progressively reduced the power of management in the organizations where you work. This has led to such well known phenomena as parental frustration when their child’s good teacher is bumped out by a weaker teacher with more seniority, and the world class service that every Rhode Islander has come to expect at the Registry.
4. This has led to a growing perception over the years on the part of private sector voters and taxpayers (and not a few of your fellow union members) that they are not getting value for money in exchange for the high taxes they pay in RI.
5. These high taxes, as well as our relatively weak schools and anti-business regulatory and political climate have driven businesses from RI. In turn, this process has drastically reduced the number of private sector union employees in RI.
6. In the face of declining union numbers, for the past 20 years or so organized labor in RI has been in a pact with the devil, so to speak — they have been forced to ally with the progressive wing of the local Democratic Party to retain their hold on the General Assembly.
7. And here is where we get to the crux of the problem. Had your union leadership been looking out for your best interests, they would have insisted that, in the years pension and post-retirement health care benefits were earned by you and accrued as liabilities, they should have been fully funded, not just through your high contributions, but through the State making adequate contributions to pension funds and funds that were not established to provide assets to offset the growing post-retirement health care liability.
8. And what prevented your union leadership from forcing the General Assembly to make these contributions? Their progressive allies had an ever expanding agenda to fund, whether that was RITE Care, expanded programs for immigrants, more special education mandates, or what have you.
9. Up to a point, their failure to look out for the rank and file’s interest could be hidden through such devices as unrealistically high assumptions about future investment returns, retirement dates, mortality, and health care cost inflation. However, we have now passed that point, and everyone can now see the Emperor (your future benefits) has no clothes.
10. While we can all hope that the SEC investigation of possibly fraudulent disclosures made in conjunction with the issuance of RI public sector bonds will produce some indictments, I’m not holding my breath. So that leaves a pretty clear choice about what you can do to preserve your future pension benefits: (a) dramatically reduce spending on the progressive agenda, and spit the benefit between reduced taxes and increased pension contributions; (b) dramatically increase taxes, and hope that people don’t move away resulting in less not more revenue being collected (but keep in mind there’s no guarantee that the progressive agenda won’t eat up most of the new tax revenue that comes in); (c) default on the state’s bonds, and divert the principal and interest payments into the pension fund. That’s it. Those are your choices. The Feds aren’t going to bail out RI (or any other state), and there aren’t enough state assets to sell to close the underfunding gap. That’s why Gina is talking publicly about up to 50% hits for some of your benefits.
Oh, and one last thought: You might want to consider voting out of office the union leaders (and well paid union staffers) who got you into this mess.
Monique, I believe John needs to do some more research before he goes on record and also General Treasurer Raimondo because there are a lot of twists and turns to the retirement system. It’s not one size fits all! First off not all State of Rhode Island employees are union members and I understand John’s comment is mainly being directed towards the unions. Secondly, not all State of Rhode Island and I’m not fully sure but there might be some in education that are fully funded by the Federal Government including all wages and benefits even though they work for the school departments. I was one of those fully funded Federal Government/State of RI employees meaning the Federal Government paid 100% into the State of RI retirement system for my retirement. I paid my own medical. Now I know according to AR, John and you the RI retirement system are so over generous that after 17 years’ service I get a whopping unheard of amount of $1,054.54 after taxes a month and I don’t get a 3% COLA!!!!! Good thing I live in Hawaii where I don’t have or have reduced taxes due to senior citizen status but still under State of RI law I must and all out of state residents of the RI retiree system are required to pay State of RI income tax. RI retirees moving to Florida actually end up paying more in taxes than living in Hawaii plus they get winter cold requiring heating bills and brutal exterminator bills and drenching humidity! And here lies the problem, under the proposal according to John General Treasurer Raimondo wants to cut my retirement by up to 50%. I say GOOD! DO IT! The State of RI signed a contract with the Federal Government to utilize federal funds… Read more »
Nothing within Ken’s post contradicts anything within John’s post.
I am therefore, as usual, scratching my head as to the purpose of the 514-word former.
Someday Ken, you are going to tell us the secret of how you live in America’s most expensive state on $1000 a month.
Until then, nothing you say has any credibility.
The delusionary concept you have that Florida has “higher taxes” proves it. Zero income tax. Lower sales, alcohol and gasoline taxes. No “car tax”. Most of all-property taxes barely a third those of the RITanic.
John says not a word about the really ridiculous pensions: the judges and high-ranking judicial appointees whose pension income reaches near or hits six figures.
But most, if not all, of those people were never union members. Guess that’s an inconvenient fact which gets in the way of the story John wants out there.
And socially conservative legislators who’ve voted to support the most profligate pension spending are excused? Guess that’s their hall pass.
I thought that was an excellent analysis. However, I still don’t think that a 50% pension after 20 years of firefighting, while contributing 9 1/2 % for those twenty years is “grandiose.” And Bella makes an excellent point as well.
In theory, judges deserve high pay and pensions because it is very difficult to attract good judicial candidates otherwise, and it is important to maintain the integrity of the positions. In practice, RI fills all the judgeships with 3rd or 4th tier law school hacks with maxed out political campaign contributions to the state Democratic party. Like everything else in this state, the positions become just another sweetheart gift bestowed upon those who unquestioningly serve the corrupt single party.
Dan, I was not contradicting John’s comments but adding information that was not addressed. I was pointing out that the RI retirement system has embedded contractually 100% financed federal funds allocated to some employee (union and non-union) that are paid by Federal Government dollars to manage federal programs embedded within State of RI government and the local RI cities and towns. There will be a problem if General Treasurer Raimondo unilaterally makes cuts to those pensions jeopardizing federal funding to the State of RI. When Governor Linda Lingle(R) Hawaii Governor ordered all state employees and teachers take furlough Fridays to balance Hawaii state budget she ran into trouble because of Federal/State employees contractually being paid by the federal government their wages and retirement. Under the contracts a set amount is automatically paid to the state, city or town each pay period for the employee’s wages and benefits. Tommy Cranston, Actually I allowcate myself $3,000 a month for all bills, food, bar tab and entertainment. I addressed this once before to AR commenters but for your information how does privately investing for my own retirement sound like? I was paying my own medical because I wanted better insurance and coverage. I also worked private industry and I was a vested federal and non-vested municipal employee but my job was paid by the Federal Government before I accepted the Federal/State of RI management position which I am also vested. My wife and I did a lot of research on retirement and when she was diagnosed “terminally ill” I promised she would have her wish to retire to Hawaii before she passed. We had the financials built up, spent 5-years visiting, researching each Hawaii for island retirement plus backup Island and with the sale of our house at “our asking price” 5-months before… Read more »
Ken-
tl;dr
As always.
“I thought that was an excellent analysis. However, I still don’t think that a 50% pension after 20 years of firefighting, while contributing 9 1/2 % for those twenty years is “grandiose.””
You might not think it, but let’s do the math:
Assuming you make $60K and contribute 9.5%, and the investment earns 6% interest for your 2-year career, you will have saved $215,000. To safely draw $30K (50%) from an account for forty years, you’ll need about $600K. Basically, you need a 2:1 ‘match’ on your retirement contributions from the state to retire without requiring ‘subsistence’ payments from the annual budget (read: higher taxes). That’s all fine and good, it’s very generous, but it’s not insane for you to set aside $6k and your employer to set aside $12K, especially when you have a job like you do that really takes a toll.
Here’s the problem: The government didn’t put their part of the money away. They actually didn’t put -your- part of the money away either, they spent it. So now, instead of paying $60K plus $12K for the young buck who has your old job, the city needs to pay $60K + $12K (for him) PLUS $30K for you to retire, so we’re paying 41% more than we should to have fire coverage. Considering that it’s possible (and highly likely) that there are -two- generations of retirees for each worker who put twenty years in, that number jumps to 183%.
Anything above 100% puts a lot of pressure on the government to cut corners by not contributing their part or to ‘eat’ your part, exacerbating the problem. If we really want to dig out from this mess while honoring past agreements, Rhode Island has about forty years of nose-to-the-grindstone heavy lifting to do.
Whoops, typos there: ’20 year career’, and ‘83% more’, not 183%.
20 years ago the city of Providence hired me, and as a condition of employment guaranteed the pension. It’s not up to me to do the math, I figured they had it figured out. I contributed my part, and I fully expect to be paid. If the city falls into insolvency, well then, we have bigger problems than my pension, and I’ll worry about it then.
I know, Michael, and It pains me to say that the beneficiaries -and- the taxpayers are likely going to have to split the damages. Paying 1.5 times the expected annual outlay for personnel in a state or town is fiscal-economic murder.
We need laws that -force- funds for upkeep of infrastructure and pensions to be put aside responsibly. I think we might even need judicial oversight of state and town budget planning and implementation.
Yes, if not for those darned immigrants we’d have all the money we promised you. Our hands are tied against the daunting power of those illegal immigrants and socialists!
Nothing to see here folks. Move along. With love, Your Corporate Overlords.
Yes, Russ. I’m sure if we started having managerial control of hiring, firing, and distribution of raises, the world would end. Plutocratic corporatist oil-mongers will barge into every classroom and state office and tear things apart, public unions are the last chance the poor American worker has. By securing for themselves compensation in the top 20%, they protect the bottom 80% from abuse by the oligarchs in power. I get it now.
I love the way Russ quotes Leftist propaganda pieces to us as though we are supposed to accept them as the impartial, authoritative analysis.
We’re not as dumb as your libtard allies, Russ.
Oh,come on -Russ isn’t some demon-he just doesn’t get it.
I think I’m beginning to.
and russ-I’m not sure how illegal aliens figure into this particular discusion.Maybe you ought to bring up the Palestinians-it would have the same degree of non-relevance.
“We need laws that -force- funds for upkeep of infrastructure and pensions to be put aside responsibly.”
Mangeek, it’s a good thirty years too late for that, if it even was feasible back then. Dems (who have controlled the General Assembly with an iron fist for the last 70 year) chose not to do the necessary funding for the last three decades.
The point that everyone (with half a brain) has been making is that no amount of taxation can now make up for that failure by the state legislature to actually take the necessary steps to fulfill the promises they made. Again, probably the benefits were too generous to start with to ever be feasible. Now, there’s no question that they are not feasible, in large part, because that money had to be working (i.e., invested) for the last several decades, not sitting in a drawer in the form of an IOU.
Amazingly, the public employee unions have taken no steps to protect their own future. This is not a new discussion and yet there has rarely been any talk of any extension of vesting time, minimum retirement age, or increased contribution by the rank and file. This is their golden egg and the should be doing whatever possible to protect it but their only response is to push back. State government’s funding failure is a big factor in the unfunded liability but the blame game won’t save your pension.