Tomorrow, the Rhode Island House and Senate will consider H6319 and S1111, which bring serious and necessary reforms to the state's public pension funds. Rhode Island's state and local funds are underfunded by over $7.3 billion and require a combined annual payment of nearly $700 million. This legislation would nearly halve both of those numbers.
The bills would shift Rhode Island from defined benefit pensions to a hybrid defined benefit-defined contribution system. They would also raise retirement ages and freeze cost of living adjustments until the system reaches a more healthy funding level. Importantly, much of these reforms go into effect immediately for existing workers, bending the cost curve downward at a more accelerated pace than similar reforms that apply only to future hires.
In a letter to the Legislature, ATR President Grover Norquist urged a yes vote on H6319 and S1111:
November 16, 2011
Rhode Island House
Rhode Island Senate
I am writing in strong support of H6319 and S1111, which bring urgent reforms to Rhode Island’s public pension system. With a combined unfunded liability of over $7.3 billion, quick action is necessary to get state and local pension obligations in order. I urge a yes vote on these principled reforms.
A hybrid defined benefit/defined contribution pension system is among the most important reforms in this legislation. By personalizing retirement savings, the state simultaneously gives more investment control to its employees while sharing more investment risk with them. It also gives public employees a partially portable retirement account, and allows them to supplement their savings and grow their investments long after retirement.
Raising the retirement age and freezing cost of living adjustments (COLAs) are also important steps. Rhode Island can no longer afford the status quo. This legislation increases the normal retirement age to the Social Security Normal Retirement Age of 67 years, while raising the retirement age of public safety workers from 52 years to 55 years. It suspends automatic COLAs until all state-administered pension funds are 80 percent funded.
All told, these reforms will reduce Rhode Island’s unfunded liability by over 41 percent, and cut state and local annually required contributions by nearly 44 percent. This is progress toward long-term sustainability.
Rhode Island has the opportunity to be the next major reformer in the public pension sphere. It is imperative that state and local governments tackle these issues immediately, before pension obligations consume entire budgets. This is a serious and commendable step in that direction. I urge a yes vote on these reforms.
Please contact Rhode Island state affairs manager Joshua Culling at [email protected] or 202-785-0266 with any questions.
CC: The Honorable Lincoln Chafee