Rhode Island Governor Lincoln D. Chafee and General Treasurer Gina M. Raimondo, as well as attorneys representing public employee unions and retiree coalitions that challenged changes to the state-administered pension system, recently announced a settlement agreement.
According to a joint statement by the parties, “The settlement agreement marks an important first step forward and the beginning of a process that will benefit all Rhode Islanders. It is a proposal that we all support and jointly offer to the General Assembly, members of the retirement system, and to the public. The proposal we jointly offer provides certainty and predictability for our public servants and municipalities to appropriately plan for the future. We believe this proposal is fair for our public employees, retirees, taxpayers and cities and towns.”
The settlement will resolve six lawsuits challenging 2009, 2010 and 2011 changes to the state’s pension laws (see “Unions Challenge R.I. Pension Changes with Lawsuits”).
According to the involved parties, the settlement agreement retains structural elements of the Rhode Island Retirement Security Act of 2011, including the move to a combined defined benefit and defined contribution plan, an increased retirement age, and a cost-of-living adjustment (COLA) suspension until the system is at a stronger funding level.
The changes dictated by the settlement include:
- Cost-of-living-adjustment (COLA) timing change: While the COLA will still remain suspended until the system is 80% funded, intermittent COLAs will be issued every four years, instead of once every five years. COLA is still paid on first $25,000 base but with a new formula that takes into account investment returns and the Consumer Price Index (CPI). There will be a one-time 2% COLA after passage of the legislation.
- Employees with 20 or more years of service: Such employees will shift back into a defined benefit plan with a 2% annual accrual with higher employee contribution rates. The contribution rates are 11% for state employees and teachers, and 8.25% for Municipal Employees’ Retirement System (MERS) general employees (9.25% with COLA).
- Employees with 10 to 20 years of service: Employer contributions to the defined contribution plan increase from 1% to 1.25% for employees with 10 to 15 years of service and 1.50% for employees with 15 to 20 years of service.
- Additional transition rule for retirement age: Members employed on June 30, 2012, will become eligible to retire at the earlier of age 65 with 30 years of service or their current Rhode Island Retirement Security Act retirement age.
- Employees making less than $35,000: These employees will no longer be charged a $40 annual defined contribution administrative fee.
There will also be additional changes to the benefits for firefighters, police officers and correctional officers.
The settlement agreement preserves 95% of the savings from the Rhode Island Retirement Security Act of 2011. The costs in the agreement are based on a June 30, 2013, valuation and will not take effect until fiscal year 2016. The annual required contribution (ARC) will increase by 5%. The fiscal year 2016 employer (taxpayer) contribution for the state is about $293 million (currently $280 million). The fiscal year 2016 employer (taxpayer) contribution for the municipalities is about $217 million (currently $206 million). The fiscal year 2016 employer (taxpayer) contribution for the entire system is about $510 million (currently $486 million).
The total unfunded liability will be about $5 billion (currently $4.8 billion). The percent funded for state employees and teachers will be about 56% (currently 57%). The aggregate average percent funded for MERS general employees will be about 82% (currently 83%). The aggregate average percent funded for MERS police and fire will be about 77% (currently 79.8%).
The announcement about the settlement also notes mail-ballot voting will proceed in the coming weeks, and the court will conduct fairness hearings and determine whether or not to approve the settlement agreement. The state’s General Assembly will then be asked to take action on the legislation in the settlement agreement.
More information about the settlement can be found here.
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