Rhode Island's Retirement Overhaul Will Slash Benefits
The Rhode Island General Assembly took only one month to pass a sweeping overhaul of public employee pension plans, but the residual effects on workers will last a lifetime.
The Rhode Island Retirement Security Act of 2011 (RIRSA), which was signed into law Nov. 18, institutes, among other things, a hybrid retirement system composed of a diminished defined-benefit component and a new defined-contribution individual retirement account component for most public employees starting July 1, 2012. The law is notable because it applies to current workers—not just new employees.
"We are deeply disappointed in the passage of pension legislation by the General Assembly and the governor, which will cost public employees billions of dollars in benefits over time," Rhode Island Federation of Teachers and Health Professionals president Frank Flynn, who is also an AFT vice president, said in a statement, vowing to revisit public employee retirement security in future sessions of the General Assembly.
The RIFTHP joined other unions and allies in the Rhode Island Retirement Security Coalition to defeat the pension overhaul that Gov. Lincoln Chafee unveiled Oct. 18. Despite the coalition's community outreach, the grass-roots activism was no match for a governor, state treasurer and General Assembly seemingly intent on making workers pay the consequences for the retirement systems' $7 billion unfunded liability.
Like public pension plans across the nation, the retirement plans administered by the Employees' Retirement System of Rhode Island that cover public school teachers, municipal workers, state employees and others were rocked by the stock markets' poor performance over the past several years. Employer indiscretions, however, also have played a prominent role in the funding shortfall of Rhode Island's plans. Namely, while workers have been making their required payments into their respective plans—9.5 percent of teachers' pay and 8.75 percent of state workers' pay, for example—employers have not been depositing their required contributions in full.
"This problem has taken 60 years to get to this point, and it cannot be addressed with a 'quick fix' remedy," Flynn said.
In addition to instituting a hybrid retirement benefit structure, RIRSA indefinitely suspends cost-of-living adjustments for current retirees and raises the retirement age for most workers. (For example, for all teachers with fewer than five years of service on June 30, 2012, the new retirement age will correspond to their Social Security retirement age.)
Under the existing defined-benefit plans, and dependent upon years of service and final average salary, teachers and state employees, for example, could plan on retirement income equivalent to 75 or 80 percent of their final average salary.
According to the state's actuaries, under the hybrid plan, the maximum salary replacement that will be derived from the defined-benefit component will be 40 percent—again, based on years of service and final average salary. The actuaries project that the defined-contribution accounts for longtime workers under the hybrid plan will yield 30 to 38 percent of their replacement income.
"While companies that manage private investments will benefit from this bill, thousands of dedicated RIFTHP members, including teachers, school support staff, nurses, and state and municipal workers will watch their standard of living erode because the General Assembly and the governor were in such a hurry to pass this legislation," said Flynn. [Kathy Nicholson]
November 22, 2011