How Easily the Hybrid Pension Reform Can Be Undone
Here’s a question: As Rhode Island legislators seek forgiveness for their pension reform votes, just how much will the unions have to improve their overall negotiating stance in order to completely eliminate the adverse effects of the hybrid component of that reform? The answer: Seen in terms of annual raises, a 2.5% increase — that is, a 4% average annual raise becoming a 6.5% average annual raise — will leave a 30-year employee with exactly the same pension as if the hybrid had never happened.
Of course, employees will be receiving the raises, not to mention a 1%-of-pay annual deposit into their defined-contribution accounts. The upshot is a 0.75% or so increase in pay every year above what otherwise would have been given will completely undo any savings in lifetime pay and pension that the people of Rhode Island gained by implementing a hybrid pension system.