With only a a few weeks to go before the Rhode Island General Assembly meets in a special session on pension reform, State Treasurer Gina M. Raimondo led a public meeting, hosted by the Alliance for Livable Newport, on Thursday night at the Newport Campus.
Raimondo told the audience she was there to answer questions and get ideas from the public on what she referred to as “the biggest issue facing the state.” She stressed that public input and involvement was paramount, as critical decisions will be made over the next couple of months that will impact every taxpayer in the state as well as Rhode Island’s future.
“I am encouraged that as we continue to work cooperatively to find solutions, that we will achieve a retirement system that is affordable to tax payers, fair to current and past employees and sustainable for long term," said Senate President Teresa Paiva-Weed in her welcoming statement.
Paiva-Weed referred to Raimondo as a “Paul Revere” for her determination to tackle this critical issue and refusal to sugarcoat it to the taxpayers or the federal government.
Partnered with Governor Lincoln D. Chafee, Raimondo has been working in concert with leaders and actuaries to write a piece of legislation that will go through the legislative process in October, and will hopefully be put into law by next fiscal year.
Raimondo said “inaction” is not a viable option, as the amount of money required from the state budget to fund the pensions will approximately double by next year, an increase from $300 million to $600 million. The increase for the city of Newport would be approximately $2.5 million.
The amount has already doubled since 2003 and would double again within seven years, she added. If the state ignored the problem, Rhode Island would be forced to decrease public services and increase taxes in order to fund the pensions.
“If we don’t fix this pension problem, we won’t have money to fund our future, our future schools [or] provide an environment where small business can thrive,” Raimondo said.
Rhode Island’s state pension is 48 percent funded, which is one of the lowest in the country, Raimondo told the audience. She said a state should be at least 80 percent funded.
Raimondo said that while the percent that employees contribute to the plan has remained at 8.75 percent over the years, the amount the state must contribute has exponentially increased, and was at 23 percent of the state budget last year. Without reform, that percent required by the state will shoot up to 36 percent by next year.
“This entire system is built on the assumption of a seven and a half percent rate of return. Our actual rate of return over the past 10 years is 5 and change,” Raimondo stated.
She said the structure of the state pension system is that all of the risk is on the taxpayers, which is why the state’s percent contributions go up every year, due to factors such lower than expected rate of returns and increased life expectancy.
The proposal that Raimondo and the Governor will propose, will have the backbone of four guiding principles: comprehensive, fair to all the employees, provide a secure retirement for state employees and is sustainable for the taxpayers.
In a private sector's 401K retirement plan, the employee assumes all of that risk.
Raimondo said that if the pensions went to a 401K system, it would violate her third principle which is to provide a secure retirement, and is therefore will probably not not be part of the proposal.
She said she would prefer to move towards a system where the risk is shared between the taxpayers and the state employees.
According to the Bureau of Labor Statistics, inflation has been at a nominal rate since 2008, but the retiree pension program, continues to provide cost of living adjustments (COLA) to retirees, which accounts for $1 billion of the unfunded liability.
Raimondo said one of the things they are seriously considering is changing the way the COLA is calculated, and to put a temporary suspension on the annual increases.
“We are going to get it done,” said Raimondo. “And we are going to get it done in a way that is fair, in a way that is final.”
For more information:
- Visit Raimondo’s website Secure Path RI. Visitors can get up to date information, and submit ideas
- Click on “Follow This Article” to keep updated
- Raimondo said that because these decisions will impact every Rhode Island resident, it is important to voice an opinion now, before the proposal is submited.