According to the Providence Journal, the law would suspend annual cost-of-living increases for retirees for years, match the Social Security retirement age, and move all state and local employees and public school teachers enrolled in the state-run pension system into a new hybrid plan after July 1, 2012.
Under the new hybrid plan, for each year of work after July 1, 2012, employees would be guaranteed 1% of their highest five-year salary average, but they would be entitled to a pension benefit after five years, instead of 10. Their required contributions would also drop, from 8.75% for state employees and 9.5% for teachers, down to 3.75%, and from 7% to 2% for those municipal workers promised COLAs in retirement, and from 6% to 1%, for those for whom no COLAs have been promised.
In the new hybrid plan, employees would contribute 5% in return for the “employer” — which means the state, or, in the case of municipal workers, each city and town — contributing another 1% on their behalf.
The Journal said the proposal recognizes that roughly 40% of the public school teachers in Rhode Island, and a number of municipal employees, work in communities that do not pay into Social Security. Both they and their employer would pay an additional 2% into this savings plan on their behalf.
Under the proposal, annual cost-of-living adjustments for retirees would be suspended until the state pension fund — now among the worst-funded in the nation — reaches 70% funding for partial reinstatement or, for full reinstatement, 80%, a target that could take up to 15 years, under one of several scenarios that the state’s pension consultant laid out for a study group this summer, according to the news report. But at whatever point these COLAs are reinstated, retirees could get an annual increase of up to 4%, depending on how the state’s pension fund investments are faring. This new “risk-adjusted COLA” would be applied to the retiree’s first $35,000 in benefits.
The Journal noted that the proposal has not yet been finalized, and it may change before its expected rollout next week.