Anatomy of pension reform in Rhode Island
It has been nearly six months since the culmination of a premeditated attack on public employees/teachers’ retirement security. The general treasurer, along with the General Assembly and aided by the governor with one single stroke of a pen, pilfered the retirement security of some nearly 30,000 hard working public servants. Let’s take a moment to explore exactly how we, as a state, decided to completely overhaul a system that has been in existence since 1936 in a little over six months.
April 2011, the general treasurer convinces the Retirement Board, which as treasurer she chairs, to lower the expected rate of return from 8.25 to 7.5 percent. At first glance this may not seem to be a huge development, however upon closer inspection it is clear this is the critical moment in the treasurers’ plan. In order to convince the board to lower the rate, Treasurer Raimondo pointed to the fact over the course of the past decade the plan was averaging approximately 2 percent returns. Now I am certainly no economist, and I did not go to Harvard, however I found it strange a plan that has been in existence since 1936 and the numbers being concentrated on were only the past decade. It would seem to me a larger sample would be appropriate. Could it be the numbers over the last decade support the treasurer’s argument? When you take the 1990s into account, and couple them with this past decade, the average return is almost exactly 8.25 percent. Of course, this past decade’s rate of return would not be impressive given that the United States suffered three of the worst economic years in the history of the country within the last 10 years. Part of the treasurer’s argument for lowering the rate of return from 8.25 percent was unrealistic and out of line with other states. In fact, with the exception of only a few, every state that currently offers a defined benefit to its employees uses a rate of return of at least 8 percent; several use a rate of 8.5 percent. Clearly Rhode Island was not out of line using a rate of return of 8.25 percent.
Once the Retirement Board sided with the treasurer and voted to lower the rate of return, the state of Rhode Island immediately went from having a problem to having a crisis.
What do I mean?
The moment the Retirement Board voted the state employees/ teachers pension system went from 59.8 percent funded to 48 percent funded. Keep in mind at this point we are just a couple of years away from the worst economic stretch in modern American history. Also, keep in mind a pension system at 70 percent funded is considered a healthy plan. As recently as 2001, using the treasurer’s own information, which was handed out at the House Finance Committee hearings, shows the system as recently as 2001 funded at 80 percent.
Why is this important?
Very simply now that a crisis has been manufactured, a large amount of pressure is shifted onto the General Assembly. Now in the middle of a massive budget shortfall, the leadership is forced to come up with double the amount of money in order to properly fund the system. The rate of return was the first domino. Once she got that lowered, the treasurer had the one thing others before her had not been able to accomplish, attention of the General Assembly.
Although the rate of return was crucial to the plan, there were several other pieces that still had to fall in place. The first was to garner public support. Of course, this was not difficult in a time when property taxes are forever increasing, working men and women in this country have been under constant attack, and given human nature of the populace who have had there retirement security stolen along with a number of workers’ rights taken under the guise of competitiveness to take to the old “misery loves company ideology.” Second, Treasurer Raimondo spent a great deal of time speaking to community groups and service providers explaining to many if we don’t take the retirement security of our public servants, there would be no money to fund their worthy mission [for example, Crossroads RI]. By effectively scaring these community groups into capitulation, she now had the “boots on the ground.” Thirdly, Treasurer Raimondo rounded up wealthy business owners from companies like Dimeo Construction, Gilbane and Amica Insurance, to name a few. These companies provided the funding source for the front organization, Engage RI.
In summary, the rate of return gets lowered, putting enormous pressure on the budget and drawing in support of the General Assembly leadership. Meanwhile, a statewide tour is underway to scare community groups and service providers with funding cuts, as well as playing to workforce under attack. Lastly, bring in the financial backers to support the ad campaign as well as to win support of legislators with promises of financial support. Tie it all together with a catchy acronym and the plan is complete. This, in a nutshell, is the anatomy of the travesty that occurred nearly six months ago.
What we are left to deal with now is a long, drawn-out legal battle where the only true winners will be the lawyers. Meanwhile, thousands of loyal hardworking public employees and teachers are left with little to no retirement security.
Mike MacDonald, a resident of West Kingston, is president of Local 528 of Council 94 of the American Federation of State, County and Municipal Employees representing workers at URI.