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R.I. pension costs could reach $836 million by 2017

6:25 PM Wed, Mar 04, 2009 |
Susan Areson    Email

By Katherine Gregg, Journal State House Bureau

PROVIDENCE -- Even if the stock market rebounds next year, the cost to Rhode Island taxpayers of providing some of the most generous public employee pensions in the region will shoot from $370.9 million this year to a projected $836.3 million by the year 2017.

That sobering warning was the starting point for a series of cost-cutting proposals that a top aide to General Treasurer Frank Caprio spelled out Wednesday to a special pension-study commission appointed by House Speaker William J. Murphy.

With the commission aiming to wrap up its year-long, stop-and-go study by the end of this month, Caprio chief of staff Mark Dingley said the state is paying today for past mistakes, among them: decades of unfunded benefits increases, inconsistent investment returns, inaccurate actuarial assumptions and insufficient contributions between 1939 and 1996, when the state conducted its first "experience study.''

"Forget blame. Look forward, address issues,'' Dingley told the commission, made up of lawmakers, union leaders, a judge, a state police representatives, a mayor, and at least one CPA.

While he did not take a stand on any one of the many age-and-benefit proposals that have been considered, he instead showed how much closer to the regional norm Rhode Island would be if it required its workers to wait until they turned age 65 before they began collecting pensions, as is common in the private sector.

He did not embrace Governor Carcieri's bid to eliminate 3 percent annual cost-of-living increases for any state workers or public school teacher who does not retire by a certain date, now up in the air. He suggested instead that the pension commission -- and ultimately, the legislators -- take a cue from Massachusetts by limiting the annual COLA to the first $12,000 in pension benefits to prevent an "undue financial burden'' on those with the smallest pensions.

Dingley also acknowledged what has become obvious: that the pension advisers hired by the commission for $81,000 have not yet delivered a big piece of what they were commissioned to produce last June.

They were asked to evaluate how much more or less it might cost to "combine a defined contribution plan with a much-reduced defined-benefit plan'' for new employees, akin to the federal employee retirement plan. It remains unclear why this part of the June assignment was dropped by the actuaries at Gabriel Roeder Smith & Co.

Through Dingley, Caprio did make several specific recommendations, however. Among them:
-- Eliminate the financial incentive for public sector workers to go out -- and stay out -- on a disability pension which pays them two-thirds of their pay, tax-free by reducing payments to those who are not totally disabled.
-- Increasing oversight of workers on disability and adopt "mandatory rehire provisions'' when it is clear that workers can return to light duty.
-- Shifting the job of evaluating disabilities to the professional operators of a long-term disability insurance program. It is now done by an arm of the state retirement board, made up of lawmakers and employee representatives.
-- Require employees buying credit toward their state pensions for past activities -- such as substitute teaching, military service and Peace Corps service -- pay the actual cost of those years to the pension system, not the discounted amounts allowed now.
-- Eliminate an option that allows retired state workers and teachers who retire young to get a so-called Social Security supplement, that bumps up their pension by hundreds, and in some cases, thousands, of dollars in the years before they qualify for Social Security. Their pension is cut when they reach age 62, but with annual cost-of-living increases they are already well ahead of where they might otherwise have been by then.

"Data strongly suggests that the initial higher benefit of [this Social Security Retirement Allowance] induces more members to retire earlier -- at greater expense to the system.''

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