PROVIDENCE – General Treasurer Gina M. Raimondo released a report Monday analyzing the historical causes of Rhode Island’s pension problem, estimated between $6.8 billion and $9 billion, and outlining possible fixes.
The estimate is based on differing public and private pension fund accounting rules. The $6.8 billion was derived under public accounting rules and the $9 billion estimate under more conservative private accounting rules. The state also has unfunded liabilities of $775 million for Other Post-Employment Benefits, mostly health benefits for retirees.
The report, “Truth in Numbers: The Security and Sustainability of Rhode Island’s Retirement System,” said its goals were to: estimate the price tag for past service, diagnose the key drivers of the structural pension deficit, understand the implications of further inaction and provide a framework for solutions.
“Today Rhode Island’s pension plans provide neither retirement security nor financial sustainability and are in dire need of re-design,” said the report, while noting that there are “real people and families connected to every number and every actuarial assumption” but that the problem does not lie with them but rather with a poorly designed system.
The five factors that created the pension structural deficit include: a failure to use sound actuarial practices, generous benefit improvements without corresponding taxpayer or employee contributions, the current pension plan design, retirees living longer, and lower-than-assumed investment returns.
“The pension bill is rapidly coming due and without significant changes to the current course, present and future taxpayers along with current and future employees will be required to make huge contributions, primarily for past service,” the report said.
The report also outlined a framework for solutions, ranging from accurate and transparent assumptions (a more conservative approach to actuarial assumptions, more timely updating of experience studies and annual reporting of results) to “equitable and reasonable changes” such as increasing the retirement age to 67 (which would cut the unfunded liability by $700 million) and “anti-spiking” provisions to prevent end-of-career increases in pension levels.
I just love how the Prov Journal and others have calculated that the cost of the pension debacle in RI willl be about $30,000 per household. What they can’t admit is that only about 50% of RIers actually pay any income tax, so the real cost to working men and women is about double what you are being told…maybe triple. Re-calculate the cost to taxpayers based on the number of income tax paying households in RI, and you’ll get a more accurate picture. But with only half of the state paying taxes, will any reform really happen? Also, since half of the working people in RI are expecting to collect a state/city pension, and when they hold so much influence over who gets elected, which elected officials have the guts to vote for reform. Folks, without groups like the Tea Party speaking up for taxpayers, there would be no hope for any reform. Think of what a mess RI will be left with when all those tax paying households eventually get fed up and move away. PBN should report on the true cost to taxpayers and not follow the ProJo’s warped math.