February 6, 2014
In the fall of 2011, the Rhode Island General Assembly passed and Governor Lincoln Chafee signed landmark pension reform legislation intended to end a pension funding crisis and make retirement obligations for public employees more sustainable for the state and many local governments. To learn more about Rhode Island Retirement Security Act of 2011 (RIRSA) reforms, see this Civic Federation blog post from 2012.
The legislation went into effect July 1, 2012 and its primary provisions include a suspension and reduction of cost-of-living adjustments, an increase to the retirement age and a new hybrid pension benefit plan. The State of Rhode Island reports that its FY2013 pension contributions were reduced by over $117.9 million due to the legislation and it expects savings to continue in future years. Previously, the required taxpayer-funded employer contribution to the Employees’ Retirement System of Rhode Island (ERSRI) was projected to double between 2010 and 2013 from $303 million to $615 million and lawmakers worried such an increase would crowd out funding for state services such as education.
Rhode Island’s unfunded liabilities for ERSRI immediately decreased by $2.7 billion upon passage of the legislation. The funded ratio for state employees increased from 48.4% to 59.8% and the teachers’ ratio increased from 48.4% to 61.8%. Since the updated FY2010 actuarial valuations that included the effect of the reforms were released, the funded ratios for state employees and teachers have fallen somewhat due to actuarial returns below assumptions.
Unions and retirees filed coordinated lawsuits against the legislation in June 2012 based on the Rhode Island Constitution’s contracts clause and takings clause. The unions were not successful in gaining a temporary restraining order, so the reforms went into effect while the lawsuits continue. There are at least six public sector unions and retiree groups suing the State of Rhode Island over the reforms
It is important to note here that unlike Illinois, Rhode Island has no constitutional provision explicitly protecting pensions. Rhode Island courts have previously provided protection for public pension benefits based on impairment of contractual principles.
In December 2012, Judge Sarah Taft-Carter ordered both sides of the dispute into mediation to try to resolve the dispute without a trial. Over a year and sixteen updates later, the mediation continues. State legislators, the Governor and Treasurer disagree about the advisability of attempting to change the legislation in mediation after the fact. Governor Chafee has been supportive of a settlement, while Treasurer Gina Raimondo, one of the driving forces behind the passage of the RIRSA legislation, had previously publicly supported litigation. If participants agree to a mediated settlement of the lawsuits, any changes to RIRSA will have to be approved by the state legislature. However, legislative leaders have no representation in the mediation process because they are not named in the lawsuit.
Legislative leaders last month noted their concern about the possible outcomes of the closed-door mediation process. Both House Speaker Gordon D. Fox and Senate President M. Teresa Paiva Weed told reporters that they had hoped the state would be able to move on from the pension issue after the difficult vote in 2011 and tackle other problems. In an interview, Speaker Fox said if the mediated settlement would put the state in a worse fiscal position, he would consider advising his members to vote no. President Paiva Weed said in a separate interview that while she would be open to hearing about proposed changes to the reforms, she has not heard of a proposed settlement that had not already been rejected as insufficient by the General Assembly.
As noted in a previous post on this blog and as expected, union and retiree groups have filed lawsuits against Illinois’ state pension reform law passed in December 2013. There are currently four lawsuits. However, in contrast to Rhode Island, one of Illinois’ legislative leaders said that the state should not plan to incorporate budgetary savings from the pension reforms while litigation against the pension reform law is still in progress.
 The discussion here will focus solely on the RIRSA reforms and not the pension reductions made in various fiscally challenged communities throughout Rhode Island.