Inevitable: Rhode Island considering reducing pension benefits to current retirees
Why should pension reform matter to state workers – as much as, if not more than, to taxpayers?
Because once a state or local government runs out of money, those “guaranteed” retirement benefits aren’t so guaranteed after all.
State Treasurer Gina M. Raimondo (D) said that per capita, Rhode Island has the nation’s largest unfunded pension liability. But if the Ocean State’s pension problem is among the country’s most severe, so are the remedies being considered to solve it.
An ongoing pension reform effort is likely to result in reduced benefits for 51,000 public workers and retirees. Officials are pondering lowering retirement payments, replacing part of the guaranteed pensions with 401(k)-type accounts, and sharply reducing generous cost-of-living increases enjoyed by retirees. The Rhode Island legislature is expected to consider changes next month during a special session.
Until recently, most states, including Virginia and Maryland, have attacked their pension problems by cutting benefits for new hires while preserving retirement packages for current employees. Others have rolled over their pension debt by taking out loans or papering them over with what some have called unrealistic projections about investment earning and life expectancy.
But with states facing, by one estimate, a combined $3 trillion in unfunded pension liabilities and the economic downturn continuing to dampen government tax revenue, states are beginning to make changes once considered unthinkable – such as cutting pensions for people in retirement. …
Last year, South Dakota, Colorado and Minnesota moved to reduce cost-of-living increases for retirees in their public pension systems. Similarly, New Jersey and Maine this year cut cost-of-living increases in their plans. All of those changes have been met with court challenges. [Emphasis added]
The discussion over state and local pension programs, like – I predict – the debate over Social Security, is becoming less of a debate and more about understanding and accepting hard truths – hundreds of states and cities have huge unfunded liabilities in their retirement programs, and they don’t have the money to pay what was promised.
If I were a public employee – especially one under 35 – pension reform, like converting all government retirement plans to a defined-contribution system, would be my top priority. Otherwise, in some cases, your “retirement” money isn’t going to your retirement at all.
The burden is also heavy for participants in Rhode Island’s pension system. Teachers contribute nearly 10 percent of their salaries to pensions, and other employees contribute slightly less. But the generous benefits promised by the government and the huge unfunded liability mean that most of that money goes to keeping up with payments to current retirees. That leaves little for future retirees and endangers the system overall.
Even pensions aren’t immune from reductions when the government runs out of money, and governments at all levels are quickly running out of money.