Pension settlement leaves future benefits uncertain

The nation has watched Rhode Island’s long struggle to repair its public pension system as a possible prologue to retirement overhaul efforts across the country.
The resolution, however, may leave as many questions open as answered.
In a proposed settlement announced after months of closed-door negotiations, state and union leaders laid out a plan to avoid the high-stakes court fight over whether the government can take away benefits promised to current and retired workers.
By giving back 5 percent of the projected savings from the 2011 overhaul law, Gov. Lincoln D. Chafee and General Treasurer Gina M. Raimondo guaranteed the state would keep the vast majority of those savings, an estimated $3.9 billion. For their part, the unions extracted an additional $232 million in concessions for current and future retirees while preserving some legal leverage.
The settlement, which still needs approval from both workers and the General Assembly, would not require any additional state spending until the fiscal year starting July 2015.
But if the past is any indication, pensions are a long game in which small changes can have significant future impacts, and in most years one side or the other is usually looking to improve its position.
So if the pension settlement is approved, will it tilt the legal and political landscape toward future state leaders or workers?
“The impact of the settlement is much closer to leaving everything up in the air,” said Michael Yelnosky, professor and dean designate at Roger Williams University Law School. “The purpose of the settlement is to avoid adjudication in terms of what the law is in Rhode Island on the ability for a legislature to make changes to statutory benefits. If approved, it will be the same as it was the day before these cases were filed.”
With Rhode Island punting this legal question, national attention will turn to other states with pension changes and legal challenges now working their way through the courts.
That doesn’t mean however, that lawmakers being asked to approve the settlement aren’t wary of its future implications.
Setting the immediate financial implications for the pension fund aside, House Minority Leader Brian C. Newberry, R-North Smithfield, wants to see a number of legal questions about the settlement addressed.
Chief among them is whether the settlement would establish a legal contract binding the legislature, even after the lawsuit is closed, from making future benefit changes. “The settlement of a lawsuit is always a form of contract enforceable by courts,” Newberry said. “If that settlement is ratified, does it strengthen the position that future pension changes are unconstitutional or a breach of contract? I don’t know the answer and would like to see someone weigh in on that.”
While the financial givebacks in the pension settlement are arguably modest, Newberry said they could be part of a union strategy to strengthen their position in the long term.
“There are all kinds of scenarios you can imagine where the state might need to change benefits: What if investment returns plummet?” Newberry said. “Maybe [the unions] felt they were going to lose under the existing structure, but by getting a few crumbs, maybe they lock the state in.”
On top of the contract question, Newberry said the unusual court-ordered, secret mediation process, which lawmakers were not a part of, raises issues of whether approving the settlement marginalizes the legislature.
And at some point, he said the legal uncertainty surrounding whether the state can change retirement benefits should be settled.
“There is no simple answer to what the legislature can and can’t do,” Newberry said. “This does not settle the constitutional reach of power. But beyond that the biggest problem is at the end of the day the legislature is being asked to abdicate its responsibility to those we represent.”
On the question of whether the settlement could become a binding contract preventing future benefit changes from the General Assembly, Yelnosky said he didn’t think that would be the case, but it is a legitimate concern.
In fact, Exhibit D of the settlement includes language specific to future legislative action. “Nothing in this judgement shall be construed as a limitation on the General Assembly to enact, amend or repeal laws now or in the future.”
Has the General Assembly “become the third party to this contract and now it is easier for the unions to make a breach of contract case? Maybe this gets them closer to that,” Yelnosky said.
But even if it did, Yelnosky said the state could still argue it was using its emergency powers to justify a change.
If the stakes of the current pension fight were too high for either side to risk going to a judge’s decision, Yelnosky said one way to get clarity on the abstract question of whether the state can take away promised benefits, would be for the governor or General Assembly to ask the Rhode Island Supreme Court for an advisory opinion. (That wouldn’t address whether it could use its emergency powers.) But that would assume both sides really want to know the answer to the legal question when, at least politically, the status quo may suit all parties.
“If the unions thought they had a good case, they certainly won’t think their case got any worse, maybe improved,” Yelnosky said. “If the treasurer thought she had the authority to do it before, she still thinks [that].”
House Speaker Gordon D. Fox and Senate President M. Teresa Paiva Weed have said they need to study the settlement and talk to members before they decide whether to endorse it.
In the closely watched Democratic gubernatorial primary, Providence Mayor Angel Taveras’ campaign said he is still reviewing the settlement.
On the other hand, Clay Pell in a statement criticized the original pension overhaul for failing to negotiate with workers, but said he supported approval of the settlement.
On the Republican side, Cranston Mayor Allan Fung blasted the settlement as “pandering” and “politically expedient.” Ken Block characterized the settlement as “pandering to the union bosses in closed-door deal making,” and called on the legislature to reject it.
Outside Rhode Island, the proposed pension settlement has mainly eliminated a reason for the nation to watch the courts in the smallest state.
At the Laura and John Arnold Foundation, a Houston nonprofit that supports pension reform and was founded by a former energy trader who has contributed to Raimondo, the settlement is being viewed positively on balance.
“It is a shame anytime benefits have to be reduced and in Rhode Island they were pretty significant benefit reductions,” said Arnold Foundation Vice President of Public Accountability Josh McGee. “With the settlement there are some concessions to workers, but they are relatively minor [campared] to the savings of the law.”
McGee said over the last several years, nearly every state in the nation has made some benefit changes, but almost all to new workers, not retirees and soon-to-be retirees like Rhode Island did.
With the Rhode Island settlement, the top states now in the pension-reform spotlight include Illinois and Pennsylvania, McGee said. •

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