Fitch: Pension settlement agreement positive for R.I.

NEW YORK – Fitch Ratings affirmed its “AA” rating and stable outlook on Rhode Island in light of last week’s announcement that a settlement reached between the state and public employee unions on pension reform would increase Rhode Island’s unfunded pension liability by $232 million.

In its analysis of the settlement, Fitch Ratings said it viewed the announcement “as a positive indication that potentially costly litigation and fiscal uncertainty could be nearing an end,” provided that the settlement is approved by all parties.

According to the announcement made on Feb. 14, the unions will vote on the proposal over the next several months, with the General Assembly expected to take up the legislation in May. The State Retirement Board, led by General Treasurer Gina M. Raimondo, approved the settlement.

Key components of the proposed settlement include changes to the frequency of cost-of-living adjustments, a one-time 2 percent cost-of-living adjustment payable after settlement approval, adjustments to participation in defined benefit and defined contribution plans, and increased employee and employer contributions.

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“Importantly, the litigation and the settlement agreement do not affect pension plans administered directly by individual local governments in Rhode Island, which were not affected by the reform,” said Fitch Ratings.

At this time, the ratings agency does not anticipate taking rating action tied directly to the settlement announcement, given its “relatively modest” projected effect on the state’s obligations. Based on actuarial data, Fitch Ratings calculated that the settlement would preserve 94.3 percent of the total reduction in the state’s unfunded liability resulting from the 2011 pension reforms.

Under the settlement, the state’s share of the unfunded liability would increase 4.2 percent to $3.1 billion while the participating municipalities’ share would increase 5.8 percent to $2 billion.

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