Rhode Island Public Pension System Reform

[MichaelB]

On Friday the State of Rhode Island approved a series of reforms to their public pension system. The executive summary can be found here http://www.pensionreformri.com/resources/ReportwithGRSAppendix.pdf

A snippet from that summary shows they have made some very substantial changes. It hasn’t received much coverage so I am posting a short summary and link because public pension and reform are core FIRE topics and of high interest.

On October 18 2011 the General Treasurer and the Governor of Rhode Island submitted the Rhode Island Retirement Security Act of 2011 (H‐6319 and S‐1111) to reform the state and local pension systems to make them sustainable for all members and affordable for taxpayers

- Reduces the state’s unfunded liability of nearly $7.0 billion by over $3.0 billion and prevents future erosion of the state’s pension systems while targeting an 80.0 percent funding level for all pensions systems

- Ensures employees preserve what they have earned through June 30, 2012 while shifting future risk to public employees through installing a new hybrid plan that draws from both defined benefit and defined contribution plans

- [FONT=&quot]Ensures there is no impact on the ability to retire for those who are eligible to retire as of June 30 2012 [/FONT]

These are the changes

- Suspends new cost‐of‐living adjustments (COLAs) to retirees’ benefits until the system is better funded but provides for an intermittent COLA every five years until 80.0 percent funded

- Moves all but public safety employees to hybrid pension plans

- Increases minimum retirement age for most employees not already eligible to retire

- Preserves accrued benefits earned through June 30 2012

- Begins to address independent local plan solvency issues

Comments welcome (let's keep politics out)

 

[Running_Man]

The removal of COLA from the Rhode Island pensions is certainly going to surprise many retirees who planned they could count on that aspect of their retirement financing. Pension plans throughout the public sector as this gets approved and spreads to other public plans will appl pressure to remove COLA from public pension plans unless they are fully funded.

 

[arebelspy]

Those are some good steps. Tough if you were expecting your COLA'd pension, but there are sacrifices that have to be made sometimes. Hope they are able to get up to 80% funded quickly. I heartily approve of making the pension not as "sweet" for future employees (older retirement age, etc.)

Will be interesting to see the backlash and/or effect it has on other pension systems.

 

[Mulligan]

I read about this a few days ago. Actually your summary has more detail, and is a little less scary for existing retirees. My first thought of course was being thankful my pension doesnt come from there! Realistically speaking, this will be the new wave for pension reform, I believe. I would imagine over time the government pension programs will eventually transfer completely to defined contribution, or with a very minimal DB for the organizations that have exempted out of social security ( which is a whole different issue I never understood on how government organizations could opt out of SS).
It will take a while to unwind, but ultimately down the road in my opinion, the electorate will probably not tolerate a system where no one but public workers are receiving pensions.

 

[Chuckanut]

It will take a while to unwind, but ultimately down the road in my opinion, the electorate will probably not tolerate a system where no one but public workers are receiving pensions.

Does this mean we will devise a system where all long time workers can get a fair, funded pension? Or does this mean nobody gets a pension? What is include in the definition of pension? Besides Defined benefit, do 401K's count as a pension? What about matching contributions? Do they count as a pension?

I am trying to get a clear picture of what the goal is.

 

[Mulligan]

Does this mean we will devise a system where all long time workers can get a fair, funded pension? Or does this mean nobody gets a pension? What is include in the definition of pension? Besides Defined benefit, do 401K's count as a pension? What about matching contributions? Do they count as a pension?

I am trying to get a clear picture of what the goal is.

Im just giving an opinion projecting out current trends and attitudes, that started in the private world 30 years ago. I personally wish all people had some type of pension system ( I am fortunate to have one myself), as we know in reality a significant amount of people rely on SS for their own sole income. Just imagine where we would be without SS? My guess ultimately is that public sector will eventually mirror the 401k and % match. Is that the best system considering the masses (private and public) and their general lack of financial knowledge? I consider myself now to be fairly competent in financial areas now, but I much prefer my check coming once a month than having to worry about a large sum of capital bouncing up and down in my retirement years. But that is just me.There are a lot of financially saavy people here, who are used to it, and probably prefer it that way instead.

 

[haha]

Im just giving an opinion projecting out current trends and attitudes, that started in the private world 30 years ago. I personally wish all people had some type of pension system ( I am fortunate to have one myself), as we know in reality a significant amount of people rely on SS for their own sole income. Just imagine where we would be without SS? My guess ultimately is that public sector will eventually mirror the 401k and % match. Is that the best system considering the masses (private and public) and their general lack of financial knowledge? I consider myself now to be fairly competent in financial areas now, but I much prefer my check coming once a month than having to worry about a large sum of capital bouncing up and down in my retirement years. But that is just me.There are a lot of financially saavy people here, who are used to it, and probably prefer it that way instead.

It has been a very good thing for tech workers and others who move around a lot. Plenty people have benefitted from the change to defined contribution plans. Public workers who frequently have much better job security, and whose pensions are back-loaded naturally will be expected to see it differently.

Frankly, I am surprised at Rhode Island. I expected unionized public workers and governments to spur this horse till it fell over dead.

Ha

 

[Mulligan]

It has been a very good thing for tech workers and others who move around a lot. Plenty people have benefitted from the change to defined contribution plans. Public workers who frequently have much better job security, and whose pensions are back-loaded naturally will be expected to see it differently.

Frankly, I am surprised at Rhode Island. I expected unionized public workers and governments to spur this horse till it fell over dead.

Ha

Maybe people are becoming a little more pragmatic at the local level, since they cant print money. I just had my pension reduced from full COLA to mini COLA this year, and I am not upset with it. I would rather lose a little now, than continue full speed ahead demanding and getting everything that was supposed to be "mine" until the kitty is empty and I wonder why I have nothing at all. You are certainly correct HA, in that portability of retirement funds assists mobile people who cannot stay in one place long enough to capture the back loaded feature that most pensions have.

 

[youbet]

Overall, the planned changes seem prudent and pragmatic. Two issues catch my attention and it will be interesting to see how they pan out over time.

1. Will RI continue to be able to attract and retain qualified employees?

2. Will the elimination of the COLA for already retired folks turn out to be a bit draconian for some who recently retired based on having a COLA'd pension? For example, if you retired at the earliest opportunity based on calculations that included a COLA'd pension, will your standard of living fall unacceptably low in 15 - 20 years depending on inflation? I'm assuming there are folks who retired recently that wouldn't have had they known their pension was not COLA'd.

 

[jimnjana]

Overall, the planned changes seem prudent and pragmatic. Two issues catch my attention and it will be interesting to see how they pan out over time.

1. Will RI continue to be able to attract and retain qualified employees?

2. Will the elimination of the COLA for already retired folks turn out to be a bit draconian for some who recently retired based on having a COLA'd pension? For example, if you retired at the earliest opportunity based on calculations that included a COLA'd pension, will your standard of living fall unacceptably low in 15 - 20 years depending on inflation? I'm assuming there are folks who retired recently that wouldn't have had they known their pension was not COLA'd.

They don't eliminate the cola entirely, they get a bump every 5 years. As far as to your first question, I'm sure this will have zero or very limited impact on RI being able to hire individuals to fill vacancies. The benefits are still very generous.

 

[Birdie Num Nums]

It may not be long before the first lawsuit is filed, if it hasn't been filed already.

"The cases range from people opposing cuts to social services to public employees demanding the state restore cost-of-living increases to certain pension plans. The pension cut alone is worth $399 million in the current two-year budget."

 

[youbet]

They don't eliminate the cola entirely, they get a bump every 5 years.

After reviewing the COLA discussion in the document MichaelB attached, it looked to me like the modification of the current COLA formula to permanently reduce increases and implementation of an "intermittent COLA every five years" until 80% funding is reached could have a significant impact on someone already retired whose retirement decision included the COLA formula in place on their last day of employment. While I'm all for modifying public employee pension plans so they "share the pain" more equitibly with tax payers in tough times, I am sympathetic to folks already retired and likely too old to return to work. Changing their pensions should be a last ditch step and only if nothing else can be done.

As far as to your first question, I'm sure this will have zero or very limited impact on RI being able to hire individuals to fill vacancies. The benefits are still very generous.

I'm inclined to jump to that conclusion too. But I've learned that sometimes it's best to react to these things by first noting my initial reaction and then observing what actually happens. Of course, it'll be years before this plays out.......

 

[Spanky]

1. Will RI continue to be able to attract and retain qualified employees?

Do companies in the private sector that only provide defined contribution plan have any difficulty in attracting and retaining employees? The answer is a resounding NO unless they treat their employees like dirt such as low pay, unrewarding tasks, long hours, not appreciating good work, etc.

 

[youbet]

Do companies in the private sector that only provide defined contribution plan have any difficulty in attracting and retaining employees? The answer is a resounding NO unless they treat their employees like dirt such as low pay, unrewarding tasks, long hours, not appreciating good work, etc.

As mentioned above, you're probably right. I'm just prone to not jumping to conclusions and to being on the lookout for unintended consequences.......

It's good to know, from a staffing expert such as yourself, that as long as you don't "treat your employees like dirt such as low pay, unrewarding tasks, long hours, not appreciating good work, etc.," difficult to recruit positions in engineering, software development, law enforcement, etc. will be quick and easy to fill.

 

[Spanky]

2. Will the elimination of the COLA for already retired folks turn out to be a bit draconian for some who recently retired based on having a COLA'd pension?

While it's unfair for the retirees to cope with inflation, the alternative if any could be a lot worse if they decided to reduce the payment by half (or more) as an example. Sorry to bring this up as a possible scenario.

 

[ERD50]

I'm surprised to hear that they are making changes to the benefits of current retirees. Here in IL, all discussions are towards changes to benefits that will be earned in the future.

The first step was applied to people not even hired yet (changes made in 2010, applied only to those hired in Jan 1, 2011 and later).


-ERD50

 

[HFWR]

...unless they treat their employees like dirt such as low pay, unrewarding tasks, long hours, not appreciating good work, etc.

Companies don't do this. It's only the employees who work too little, make too much, etc...

 

[52andout]

I spoke with two of my relatives who have RI pensions. The old way was you were able to go out after 30 years, so they had people retiring at 47 and 48 with a pension that was larger that would be reduced when they turned 62 and took SS. All the years they worked they saw no reason to save outside the pension plan, it was extremely difficult to get fired so they could float along for years and years. Healthcare many years ago was free, now they have co-pays etc.

From what they have heard, it is going to take 17 or 18 years with reduced or no colas to get the system solvent again. The thing about colas is similar to the stock market and other investments. If you thought you were going to get at least 4% return year in an year out then you can really take a hit if you have several years at 0%. Maybe not the first few years but after three or four years it can start to add up.

and HFWR I am not sure how long you have been out of work, but my last few years we were being told to suck it up, if we didn't want to come in on Saturdays, stay late and take on more and more tasks as they downsized around you, you could walk out and plenty of people would be glad to take your job. I know a lot of my friends experienced the same attitude as more large companies bought up little ones and the CEO compensation soared while the little people got small raises and recognition. I think that is a lot of what OWS is all about.

edited to add I just saw your smiley face and realized you may have been being sarcastic.

 

[ripper1]

Overall, the planned changes seem prudent and pragmatic. Two issues catch my attention and it will be interesting to see how they pan out over time.

1. Will RI continue to be able to attract and retain qualified employees?

2. Will the elimination of the COLA for already retired folks turn out to be a bit draconian for some who recently retired based on having a COLA'd pension? For example, if you retired at the earliest opportunity based on calculations that included a COLA'd pension, will your standard of living fall unacceptably low in 15 - 20 years depending on inflation? I'm assuming there are folks who retired recently that wouldn't have had they known their pension was not COLA'd.

Being recently retired from the City of Chicago I might have considered staying on but I also contributed to a an optional 457 plan which made my decision easy. Also being retired prior to age 60 there is a 3 year waiting period to get the COLA. There is a bill in Springfield (HB 512) that states benefits earned already will be kept but going forward there would be three options for employees to take. One of which would be current employees contribute more to keep the present plan in place. The gutless wonders in Illinois have until November 29th to move the thing forward.

 

[ripper1]

Those of you who are interested in Illinois' situation can check out the website at Illinoisisbroke.com.

 

[FUEGO]

This type of action is exactly why I place very little value on the current "30 and out" type pension that my current government employer offers (and for which they extract payments from me every month). If I planned to remain 30 years and be treated fairly and expected the current deal to remain, it would be a different story. However I personally like having the option to tell the employer to go fly a kite on a whim if I so desire, since they could do the same to me if they so elected.

I don't see a lot of desire for DB plans among my 20-something and 30-something cohort of people who graduated college in the last decade or so. Not that they are averse to good fringe benefits and retirement funding, but rather they aren't interested in pursuing a 30 year relationship with a single employer. I think they would all rather have the 15% or so combined contributions to our DB plan in the form of an immediately vested 401k/457 contribution instead of this amorphous speculative DB pension benefit that may or may not be the same in 30 years and may or may not be from an entity that is solvent in 30 years. Or for the next 30-40 years after that (retiring at 50 after your "30 and out" would mean you could be drawing a pension for 4-5 decades).

 

[ziggy29]

The answer is a resounding NO unless they treat their employees like dirt such as low pay, unrewarding tasks, long hours, not appreciating good work, etc.

And even then, with a real unemployment rate of 16% or more, the answer is often "I wish I didn't have to put up with this BS but I have no choice."

 

[Bimmerbill]

It will be interesting to see if they can continue to hire positions in IT or other technical/engineering fields. I am sure in the short run they can, with the current job market. Once things improve, I don't know what sort of candidates they will attract.

 

[FUEGO]

It will be interesting to see if they can continue to hire positions in IT or other technical/engineering fields. I am sure in the short run they can, with the current job market. Once things improve, I don't know what sort of candidates they will attract.

RI may not care if they can retain the best and brightest in the IT field. Sometimes it is better to bring in consultants so you can ensure skill sets remain relevant. Otherwise you end up being afflicted with the entrenched, job-protectionist 20 year state IT veteran who wants to spend time and energy maintaining an outdated system or technology that was outdated about 4 presidential administrations ago, instead of coming in with a cutting edge strategy of upgrading to state of the practice tech.

 

[52andout]

Just read the Illinois website. The only question I have is how can there not be shared sacrifice? maybe the already retired getting a little less cola, those on SS getting a little less etc. I find it hard to look at my kids and their kids in their 30's and say I got mine, the hell with you.