February 14, 2014
By: Paul Merrion
To end legal challenges similar to those being raised in Illinois, Rhode Island’s precedent-setting pension reforms would be rolled back slightly under a settlement agreement reached today with its unions.
The agreement, which keeps most of the Ocean State’s landmark 2011 pension reforms intact, comes after more than a year of court-ordered mediation and must still be approved by lawmakers, retirees and rank-and-file union members.
Rhode Island served as a model for Illinois, both in its quest to enact pension reform last year and in the lawsuits that followed from its unions. Now this compromise could point to the end game that ultimately will prevail.
“It’s an example, a template,” said Cook County Commissioner Bridget Gainer, chairman of the county’s pension committee. “People in politics, they don’t want to be pioneers. When there’s a model out there, it’s bound to be influential.”
State Senate President John Cullerton released a statement saying the settlement “proves my point that management and labor can work together to forge a solution that is meaningful. I know firsthand such a solution can also be reached in Illinois.”
At issue, in Rhode Island as well as Illinois, is whether pensions are constitutionally guaranteed contractual rights that can’t be changed.
The settlement announced today would restore some pension increases to retirees that had been suspended in the law. It also would allow more workers to keep their traditional pension — without a new 401(k)-type account.
The settlement would cost the state $13 million and its cities and towns $11 million in additional pension costs beginning in 2015. Overall, the changes would raise the state’s unfunded pension liability to $5 billion from $4.8 billion.
The settlement would resolve the legal challenge from public workers and retirees upset with the 2011 changes — avoiding a long and costly legal battle that both sides wanted to prevent, according to lawyers for the state and the unions.
”We did not cave, nor did they cave,” said Richard Licht, the state’s director of administration, who was closely involved in the yearlong, closed-door settlement talks. ”This is not about caving. It’s about reaching an agreement.”
Rhode Island had one of the most troubled pension systems in the nation before lawmakers passed the sweeping changes during a special legislative session in 2011. The so-called Rhode Island Retirement Security Act was designed to save an estimated $4 billion over the next 20 years. Before the changes were enacted, Rhode Island’s pension costs were set to jump to $1.3 billion in 2028 from $765 million in 2015.
The law was cited as an example during debates in states like California and Illinois that face their own pension problems. Rhode Island General Treasurer Gina Raimondo’s efforts to pass the law were hailed by the Wall Street Journal and Time magazine. Collectively, states face a $757 billion pension shortfall, based on a 2012 study by the Pew Charitable Trusts, and Rhode Island was widely seen as a test case for efforts to rein in pensions elsewhere.
LONG APPROVAL PROCESS
The settlement now moves into what is likely to be a complicated and time-consuming approval process. Union members and retirees will likely be asked to endorse the settlement by mail ballot. Lawmakers will be asked to approve the settlement this year.
If they reject or modify the settlement proposal, the lawsuit would likely proceed to trial.
”The settlement is just the first step of the process,” said Lynette Labinger, lead attorney for the plaintiffs. ”The General Assembly can take any action that it deems appropriate.”
The 2011 changes were designed to shore up the state’s foundering pension system by suspending pension increases for retirees, raising retirement ages for many government workers and creating a new retirement system that combined a 401(k)-type account with a traditional pension. Supporters said the changes were necessary, but many workers and retirees argued they were unfair and unconstitutional.
The changes in the settlement would retain much of the 2011 law. The biggest changes would affect retired state and public workers.
The settlement would give cost-of-living increases to retired government workers sooner than the current law would allow. It calls for a one-time, 2 percent cost-of-living pension increase once the settlement is enacted by lawmakers.
Additional increases would come in 2017 and every four years thereafter until the pension fund is 80 percent funded. The existing law calls for limited increases every five years until the 80 percent funding level is reached. The fund is now about 60 percent funded.
The settlement also would call on public workers to contribute slightly more toward their own retirement benefits.
Top lawmakers were briefed on the settlement on Feb. 10. They did not respond to messages seeking comment today but have said they would give the settlement careful consideration.
The settlement is certain to play a leading role in multiple political dramas unfolding in Rhode Island. A legal defeat for the law would have dealt a blow to Ms. Raimondo, who has made the pension overhaul a cornerstone of her campaign for governor. Lawmakers face their own elections in the fall. The law is also a test of the political clout of organized labor, which has long enjoyed great influence in the overwhelmingly Democratic state.
Firefighters, teachers and other public workers angrily protested the proposal as it worked its way through the General Assembly and vowed to sue even before the law was passed. They argued that the changes were an unfair and unconstitutional violation of their contract rights and accused Ms. Raimondo and lawmakers of refusing to negotiate.
Mediation in the case began more than a year ago, with details of the negotiations kept secret by a gag order imposed on the talks.
The Associated Press contributed.
Copyright 2014 Crain Communications, Inc.