A decade ago, significant legislation was passed in Rhode Island, which closed the door on public pension abuse. Since then, the General Assembly has vigilantly prevented special pension legislation from becoming Rhode Island general law.
As general treasurer and chairman of the Employees’ Retirement System of Rhode Island, my role is to administer the policies set forth by the governor and General Assembly pursuant to Rhode Island general law and to protect the fiscal integrity of the system.
Recently, pensions have become a hot topic across the nation, the world and right here at home in Rhode Island. Shifting demographics, market downturns, growing required contributions, unfunded liabilities and corporate fraud have fueled the fire for pension finance reform, and rightly so.
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
By Emilio DiSpirito IV License Partner | Engel & Völkers Oceanside Leader | The DiSpirito…
Learn More
Rhode Island must now face the challenge of pension finance reform, just as we stepped up to the challenge of ending pension abuse 10 years ago. Decisions made today will impact pension systems and retirees for years to come. The pension finance issue must be reviewed in its entirety, avoiding ad hoc solutions that merely address current budget demands with short-term fixes.
Public pensions evoke strong emotions from all sides.
Government faces short-term budget challenges and long-term funding liabilities. Employees currently face high contribution rates and can only expect these to rise higher. Taxpayers are faced with paying the rising costs of pensions and often compare their private retirement plans unfavorably to those in the public sector.
It is vitally important that we look at all sides from all angles and work together to achieve a system that is fair, affordable and ultimately fiscally sound. Rhode Island is not alone in facing these challenges. Pension plans nationwide, both public and private, are confronting the very same issues.
This past legislative year, the governor proposed two changes. The first would have shifted 2 percentage points of contributions to the pension fund from the employer to the employee. This would not have changed the funding status of the system; it merely shifted the burden from one group to another.
The second, which would have tied the Cost of Living Adjustment (COLA) to the Consumer Price Index (CPI) and capped it at 3 percent, is just one of many COLA options that should be explored as part of a comprehensive pension study.
Pensions are comprised of many variables, which makes comparing plans challenging and often misleading. Even comparisons among seemingly similar public pension systems nationwide is difficult.
Each pension system is designed specifically for the population it serves. Participation in Social Security, taxation of benefits, vesting schedules, benefit rates, cost-of-living adjustments, minimum retirement ages and many more variables differ greatly from plan to plan. Each of these variables has a direct impact on cost. Because of this, comparisons must be done carefully.
When public pensions are compared to retirement benefits in the private sector, the comparison is also tricky. For instance, some private sector companies do not require employee contributions to their pension plans. They may also offer employees, through vehicles like a 401k, matching company contributions. In the public sector, employee participation in the retirement system is mandated at a pre-set rate. The ultimate goal is to provide Rhode Islanders with a public retirement system that is fair, affordable and fiscally sound.
If the system is fair and affordable, then it often follows that it will be fiscally sound. To achieve this, we must look at the whole picture and enact changes where and when appropriate. We cannot sit idly by and do nothing; if we do, we will have a system that will be a drain on Rhode Island as a whole.
The Employees’ Retirement System of Rhode Island has been told by both its actuary and investment consultant that over the next 10 years there will be a dramatic shift in demographics, with the retiree population expected to double over that time period.
Soon, the retiree population drawing pensions will outnumber the workers contributing to the system, ultimately creating funding issues.
Additionally, statistics show that people are living longer, which is a good thing, but this trend has a direct impact on the cost of a pension plan, which needs to be addressed.
We cannot afford to do nothing and let predictions regarding funding become reality. We should not allow the clock to tick without taking remedial action which, at this point, can be phased in over time.
I have been asked to be part of a working group convened by Gov. Don Carcieri, which will look at the status of the Employees’ Retirement System of Rhode Island. I look forward to working with the governor, labor leaders and the other members of the group to develop solutions that are fair and equitable to all Rhode Islanders.
Our success depends upon analyzing all the issues surrounding our public pensions in a comprehensive and unbiased fashion and through taking cooperative action by all parties.
Partisan political agendas must be put aside. Labor leaders must balance the needs of the next generation of workers against those of today. The challenges facing our pension system are complex, far-reaching and warrant this effort to fashion the needed long-term solutions.
Fair, affordable and fiscally sound: it must be done.
