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Topics: Labor Unions

Rhode Island settles suits with unions over pension-law changes

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Labor unions,Labor,Rhode Island,Entitlements,Bloomberg News,Pensions

Rhode Island officials and union leaders said they reached a deal to settle challenges to public pension-overhaul laws aimed at strengthening one of the U.S.’s most underfunded retirement programs.

Under the settlement of lawsuits filed by public-employee unions, the state agreed to restore pension increases more quickly than provided for in the revised law, according to an e- mailed statement by Governor Lincoln Chafee. The accord allows Rhode Island officials to maintain changes to the pension system that offer potential savings of about $4 billion.

“We believe this proposal is fair for our public employees, retirees, taxpayers and cities and towns,” Chafee, Rhode Island Treasurer Gina Raimondo and union leaders said in a joint statement yesterday.

The settlement helps preserve Rhode Island’s effort to lead U.S. state and local governments’ attempts to control retiree costs as pension-plan losses drained assets. Estimates of the collective unfunded pension liability across the country run as high as $4.6 trillion.

“The fact that labor was able to negotiate give backs was a victory for public employees,” Gary Sasse, former aide to ex- Governor Donald Carcieri, and now director of the Hassenfeld Institute for Public Leadership at Bryant University, said in an e-mailed statement. Chafee, an independent, succeeded Carcieri, a Republican.

“Unfortunately there are no free lunches and it will result in placing additional burdens on Rhode Island taxpayers,” Sasse said of the proposed settlement.

Pension Shortfall

In 2007, Rhode Island had the lowest level of assets to cover projected pension obligations of any U.S. state at about 54 percent, according to a study by Bloomberg Rankings.

By 2010, its funding ratio had risen slightly, to about 59 percent, ahead of Illinois, Connecticut and five others on the list, while the median value for all states fell to about 75 percent from 83 percent.

A year later, Rhode Island still trailed the 80 percent funding ratio considered adequate by pension experts, with about $7 billion in assets to cover projected benefits for more than 60,000 state workers, teachers and judges.

While the state and employees had paid into the fund, lawmakers didn’t authorize recommended amounts until the 1980s and even then it wasn’t enough, as retirement ages were lowered and cost-of-living adjustments were enhanced.

Projected Shortfall

The projected shortfall prompted Raimondo to lead the fight to revise the state’s pension laws. Under Rhode Island’s revised law, public employees faced delays in being able to retire, suspensions of cost-of-living increases and shifts to 401(k)- type savings plans. The changes allowed the state to cut its pension obligations by $3 billion, to $4.3 billion, and lowered the state’s required annual contribution by $275 million, to $414 million.

Five unions representing state and municipal workers, teachers, firefighters and police sued over the revisions, arguing the changed pension laws violated their constitutional rights by breaking existing contracts and taking away benefits already earned by retirees and workers.

Rhode Island Judge Sarah Taft-Carter rejected a request to block the changes while the dispute was being litigated. She ordered the parties to submit the dispute to mediation, which helped produce a settlement, Chafee said in the statement.

Retirement Age

The proposed settlement would drop the retirement age for most current workers to 65 from 67, make cost-of-living increases every four years instead of five and restore benefits for workers with at least 20 years’ service, according to the state’s statement.

The accord still must be approved by Taft-Carter, union members and lawmakers. The state’s Retirement Board approved the deal yesterday, according to the Providence Journal newspaper.

Raimondo told reporters last year that overturning the changes to the pension laws would mean cities and towns would have to contribute an additional $100 million to the pension system this year for teachers and other workers, potentially pushing more into bankruptcy.

“This proposal should not be perceived as a victory by one side over another,” Chafee, Raimondo and other supporters of the settlement said in their statement. “Rather, it is a positive first step forward providing for the continued stability and predictability of the retirement system for decades to come.”

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