Lawmakers Pass Sweeping RI Pension System Overhaul

By DAVID KLEPPER (AP) | Posted: Thursday, November 17, 2011 7:33 pm

Little Rhode Island is taking aim at one of the nation's biggest public pension problems and the results could have implications for other states grappling with ever-increasing retirement costs.

State lawmakers on Thursday passed sweeping changes to the pension system that covers state employees, teachers and many municipal workers. The proposal will save billions of dollars by suspending promised pension increases, raising retirement ages and creating a new system that combines pensions with 401(k)-style accounts.

Gov. Lincoln Chafee (CHAY'-fee) says he will sign the legislation.

Public-sector unions call the measure a betrayal and vow to sue the state.

Rhode Island needs $7 billion to fully fund its pension fund. Nearly every state is confronting similar problems, caused by escalating pension costs, huge investment losses and recession-induced budget deficits.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

Despite jeers and the threat of a lawsuit from public workers, Rhode Island lawmakers on Thursday night approved one of the most far-reaching overhauls to a public pension system in the nation.

The proposal is intended to save billions of dollars in future years by backing away from promised benefits to state and municipal workers in the state-run pension plan. Lawmakers called Thursday's vote one of the most wrenching they've had to cast, though the fight may not be over if unions follow through with promised lawsuits.

"It would certainly be a lot easier to walk away from this reform," said Senate President Teresa Paiva Weed, D-Newport. "However, it is clear that doing nothing only puts our retirees and our active members' benefits at greater risk. We owe it to them, as well as to all other taxpayers, to attack this challenge head on."

A final formal vote expected late Thursday will send the measure to Gov. Lincoln Chafee, who has indicated he will sign it. Chafee, an independent, is one of the original authors of the proposal.

Public workers said they felt betrayed by the heavily Democratic and traditionally labor friendly General Assembly. Some interrupted Thursday's debate with jeers and catcalls.

"They should be ashamed of themselves," said Dean Brockway, a Cranston firefighter with 28 years of experience. "These were Democrats voting to do this. They're trying to solve a 40-year-old problem in one day. They didn't have to do this."

The proposal would suspend pension increases for retirees for five years and then only if pension investments perform well. The bill also raises retirement ages for many workers and creates a benefit plan that mixes pensions with 401(k)-style accounts. The changes wouldn't apply to municipal pension plans, which are typically the result of collective bargaining.

The landmark legislation could have big implications around the nation. Nearly every state is confronting the same problem, caused by escalating pension costs, huge investment losses and recession-induced budget deficits. The Pew Center on the States released a report earlier this year that found that states face a collective gap of $1.26 trillion between what they've promised public workers and what they have set aside to meet those promises.

Rhode Island needs $7 billion to fully fund the pension fund that covers state workers and many municipal employees _ roughly the same amount as the state's entire annual budget. Under the current system, the state must pour more and more into the pension system annually, from $319 million in 2011 to $765 million in 2015 and $1.3 billion in 2028.

The pension system covers 66,000 active and retired public teachers, state employees, judges and police and firefighters. Their benefits are set by state law and not collective bargaining.

Passage of the bill is a political victory for legislative leaders, Chafee and Treasurer Gina Raimondo, who was the main architect of the legislation. For months, Chafee and Raimondo warned that unless the state reined pension costs, lawmakers would have to raise taxes and slash funds for education and other services.

"Rhode Island has demonstrated to the rest of the country that we are committed to getting our fiscal house in order," Chafee said in a statement issued shortly after the House endorsed the bill.

Leaders of public-sector unions aren't giving up and vow to overturn the legislation in the courts.

"The attorneys are going to make a lot of money," Philip Keefe, president of Local 580, which represents social service, administrative and technical workers. "If this is overturned, it will be you, me and every other taxpayer that is on the hook for billions."

Several lawmakers offered amendments, some of which were designed to soften the bill's changes. None were successful.

The Senate passed the bill 34-2 after a brief debate. Debate in the House went on far longer, as opponents of the bill unsuccessfully offered amendments designed to soften the burden on retirees. Critics warned that the changes would lead to a long and painful court battle.

"What we are about to do is a crime," said Rep. Scott Guthrie, D-Coventry, himself a retired firefighter. "You want this thing to linger around for 10, 15 years? You want to go through 10 years of litigation? You want to spend God knows how much money on legal fees?"

The House passed the bill 57-15.

Several lawmakers said they supported the bill with great reluctance, noting that they were voting to withhold money that retired workers were counting on. Rep. Donna Walsh, D-Charlestown, said it was the "most heart-wrenching, gut-wrenching vote" she has cast in 12 years in the General Assembly.

"It may be necessary, but it certainly is not fair," said Rep. John Savage, R-East Providence. "Can we honestly say to our state workers, to those who educate our children, to those who protect us... that this bill is fair? I don't think so."

The initial proposal from Chafee and Raimondo would have suspended automatic annual cost-of-living pension increases for most public retirees for about 19 years. Lawmakers revised the proposal to award increases every five years but only if pension fund investments meet certain financial targets.

The changes in the legislation would not apply to locally run pension funds, many of which are in even worse shape than the state-run system. Chafee said he will introduce legislation in January to give cities and towns greater authority to curb their pension costs.

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