RI: Switch to DC Scheme Comes with Hefty Price Tag

October 15, 2007 (PLANSPONSOR.com) - Shifting the Rhode Island retirement system to a defined contribution plan would cost taxpayers $151.5 million next year and more than $520 million over the next seven years before the state reaps any savings, the Providence Journal reported.

That was the finding of a study produced by the State Retirement Board’s actuary, Gabriel Roeder Smith & Company of Texas and commissioned by Governor Donald Carcieri for $5,500. Carcieri already acknowledged that there would be substantial upfront costs, but the report is the first time a price tag has been set, according to the news report.

The costs detailed by the study look at a pension freeze for new hires as of July 1, 2008, assuming the new employees would sign up for a defined contribution plan.

The study also suggested creating an optional defined contribution plan and creating a new benefit tier for new hires, offering them substantially reduced benefits. However the authors of the study did not look at the costs of these alternatives.

“It is not at all clear how you’d approach moving from one system to another. There are intermediate options that would allow you to spend less up front,” said Jeff Neal, a Carcieri spokesperson, according to the newspaper.

Rhode Islandstate House Speaker William J. Murphy announced his own plans at the beginning of the month to come up with a legislative study commission to look into whether the retirement system should make the switch (See RI Legislative Leader Announces Pension Study Panel ). The panel would be set up in January 2008.

Only Alaska (See Labor Unions Protest Alaska’s New Pension System ), Michigan, West Virginia (See W. Virginia Treasurer to Use Match to Increase DC Plan Participation ) and the District of Columbia make it mandatory for state employees or public school teachers to enroll in a DC plan. Another six states make enrollment in the plan optional.