CPC Study Documents How Rhode Island Implemented Pension Reform
FOR IMMEDIATE RELEASE
Sacramento, California, January 28, 2013
The California Policy Center has just published a new study that provides an in-depth chronology of Rhode Island’s pension reform efforts. Despite several incremental pension reforms passed by their state legislature starting in 2005, by 2010 Rhode Island’s state pension plan was only 48% funded, and faced imminent collapse. In late 2010, awareness of the need to save the state’s pensions intensified in the wake of the bankruptcy of Central Falls, and the court ruling that reduced that city’s existing retiree pension benefits by 50%.
Incoming state treasurer Gina Raimondo, a Democrat, had just convinced Rhode Island’s state Pension Board to reduce the assumed rate of return to more accurately reflect recent performance, which further increased the level of underfunding. She then published a 14-page report to the people of Rhode Island titled “Truth in Numbers, The Security and Sustainability of Rhode Island’s Retirement System” in June. Her purpose was “to lay out the main reasons for the state’s pension challenges, explain the implications for all Rhode Islanders, and offer a framework for devising solutions.”
In “Truth in Numbers” Raimondo wrote that before specific proposals for change are developed broad agreement must first develop among stakeholders about what the problem is, how it developed, and what reform must accomplish. She identified these key requirements of reform: accurate and transparent assumptions, equitable and reasonable changes in pensions, intergenerational fairness, comprehensive and self-correcting processes, and a realization that unfunded liability for past service must be reduced because it’s the lion’s share of the problem. This report played a key role in making it possible for reform proposals to gain broad support and be adopted.
As described in the study, the solutions ultimately embraced by Rhode Islanders included several bold and creative steps, such as tying COLA’s to the fund’s rolling five year average rate of return, and putting a cap on the amount of pension that is eligible for COLA adjustments. The solutions also include a cap on the percent of salary that may be used to calculate a pension benefit upon retirement, an increase to the minimum retirement age, and a hybrid benefit that retains the defined benefit but also adds a defined contribution component. Rhode Island today hasn’t completely eliminated the challenges they face funding their state pensions, but these changes are substantial and provide an example for other states and cities to follow.
The author of this study, John Dickerson, a financial professional living in Mendocino County who is involved in public sector pension analysis and reform, had this to say about Raimondo’s efforts, “what Raimondo accomplished in her first year in office is astonishing. Her leadership and reform is a model for other states; not only in terms of how to share difficult financial sacrifices by all parties both in order to save the pension system and sustain public services, but politically how Raimondo made this a nonpartisan issue and built an overwhelming reform coalition in her State that could not be denied.”
To read the entire study, go to “Gina Raimondo’s Shining Example – Pension Reform in Rhode Island,” or download a printable version.
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The California Policy Center is a non-partisan public policy think tank that aspires to provide information that will elevate and enlighten the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at www.CaliforniaPolicyCenter.org.