Liveblogging “Rhode Island’s Rising Pension Tide”.
Good evening. I will be liveblogging the presentation being made by Gary Morse (no relation) this evening on the subject of Rhode Island’s pension problems, sponsored by the Providence City Republican Committee…
Gary Morse speaking:
Rhode Island is number 50 in unfunded pension liability.
Mr. Morse wants to dispel the notion of the greedy state worker and the greedy teacher.
Retirements pre-1990 in the private sector were much better than in the public sector.
In 1985, Bank of America created a cash-balance pension plan. The structure, however, violated age discrimination laws.
As a result, one sentence was added to Federal law, making BoA’s practice legal. After this law was passed, companies began replacing their defined benefit pension plans with cash-balance plans.
The big money was in rolling people from defined benefit plans into the new cash benefit structure. People were told they would get their pensions, if they made it to age 65 — and then bunches of them get laid off in their 50s.
In 2006, the Federal government allowed anyone to convert a pension plan into a cash-balance plan. Benefits are not based on the final three years, but what you’ve earned over your entire career.
Still, up until 2007,
public private pensions were clearly better than public sector deals. (Backfill: The correction here was a pure typo)
Actuaries are overlooking the effects of end of career spiking in their calculations.
The discount rate will go even lower than 7.5%.
Spiking of 10% in the final years leads to a 25% bigger taxpayer contribution.
(The MERS plan disallows spiking, by the way. That’s why it is in better shape than other pension plans).
Mr. Morse discusses Central Falls.
Based on the case of Pritchard, Alabama, it is possible that CF pensioners could not receive their checks for a year or more. In CF there is almost no money in the pension fund. A judge can terminate their payments, after they declare chapter 9.
What will the headlines read, if retirees have their pensions terminated? Will the GA step up and find the money for them? What ever the answer is, CF will likely be the precedent.
I’m pausing, while Mr. Morse is taking various and sundry questions…
Pension liability is 10% of
GDP GDP per-capita in Rhode Island. The US average is 4%. (Backfill: Thanks to the speaker for pointing out my error here)
So what can we do about this problem?
If Rhode Island had maintained a basic pension system without the extra perks, this problem would not have been created. The system needs to be stripped down to a basic pension plan.
We have to assume slow investment growth, and adjust the discount rate accordingly.
There isn’t enough money in the Rhode Island economy to carry our current debt load.
Mr. Morse is taking more questions from the audience. More detail to follow…