It’s well known now that one of the cornerstone elements sought in the Raimondo-Chafee Reform Plan is to suspend cost of living adjustment payments (COLA’s) to retirees. The immediate and ramped up rhetoric from the unions against that idea was fully expected because naturally, they deem the suspension as unfair.

But what may not have been widely understood up to now, as Raimondo’s opening day testimony revealed, was why the unions would be so adamantly opposed to losing the cherished compounded COLA—and likewise why her intent to suspend them should be deemed as absolutely fair.

It turns out that despite union claims that losing the COLA will leave throngs of retirees impoverished; Raimondo’s data demonstrated that an enriched retirement, as opposed to poverty, is a little closer to the truth for groups of retirees.

The Treasurer testified that nearly half of all state worker retirees (48%) and more than half of all teacher retirees (58%) are presently earning more in annual payments in retirement than they ever earned in annual salary during their working years, courtesy of the compounded COLA. Tough to find a retirement plan that can remotely match that these days. The yearly addition of the COLA to base pension has translated into layers of retirees, specifically those aged 65 or older who logged over 30 years in state employment, now receiving up to 100% --and beyond--of their former salary. Rhode Island’s contemporary compounded COLA payment mechanism has wandered very far from the original intent of supplying a modest cost of living increase payment for what is traditionally the fixed income years. Quite to the contrary, what the Treasurer validated this week was that the state pension fund COLA payments have amounted to a windfall in retirement for all too many workers, leaving behind overwhelmed taxpayers and a collapsing fund. Simply put, a system that is providing that kind of a retirement benefit is a broken system that needs the type of reforms now on the table.

Other notable moments as the General Assembly took the reins of the Reform Plan this week included the ramped up presence of Governor Chafee on the side of reform. Though the Governor nearly caused an eleventh hour disruption to the introduction of the Plan last week as he sent confusing signals over his intent for a strategy on addressing the municipal pension piece, Chafee, at last, seems to have found his footing.

The Governor, though often rightfully accused of working off an unfocused playbook, now seems sincere in his effort to see this reform plan through to the end. His new alignment with the reformers, which amounts to treason from the union’s viewpoint, could help restore some of his damaged reputation stemming from other skirmishes with the taxpayers and their general distrust of him. If Chafee stays consistent and is seen as playing a key role in the effort to shepherd the Plan through the Legislature, he will enhance his standing with the taxpayers on the state’s central fiscal issue, and could enter his second year in office on much more solid ground.

Although Chafee was right to insist on addressing the mounting municipal pension fund messes, the Treasurer’s insistence that they be handled on a parallel but separate path seems the smartest strategy. The troubled cities which Cranston Mayor Allen Fung and Providence Mayor Angel Taveras lead also happen to be the hometowns of Speaker Gordon Fox and Majority Leader Nicholas Mattiello. The mayors should appeal to these two top House leaders to help their own hometowns tackle the politically harrowing but now fully necessary COLA problem as it relates to local contracts.

Leadership’s immediate task though, is to block attempts to water down key elements of the central plan now before them. As RISC, the RI statewide Coalition, noted this week as it issued its support, the ultimate success of the Raimondo blueprint hinges on interdependent components of the Plan staying in place. Though some municipal leaders are voicing disappointment that the Plan’s projected savings do not come in as high or as fast as perhaps they would have liked, the Plan represents a recognition of the complex fiscal, legal, and political realities at hand.

There’s no question the justification for suspending the COLA has now been made vividly clear. But math is one thing. Extracting a COLA out of the hand of someone who has spent years savoring its taste, is quite something else.

We are supportive of the efforts of General Treasurer Raimondo and the Governor to address this problem and we urge this Committee to approve the basic plan as it has been developed and placed before you for public hearing. 

In supporting this proposed legislation, it is our conviction that it represents a reasonable start toward the solution of a problem that, unless it is addressed and the actions recommended are taken, will inevitably result in a financial disaster. Rhode Island citizens and taxpayers will be ill-served if in the consideration of this issue, the proposed legislation is rejected or “watered down”. There is no reasonable alternative but to begin now to solve the unfunded pension liability problem, in the matter proposed.

Having said that, it is only fair to state that we recognize this legislation represents only a start toward the solution of the total unfunded pension and related financial problems. There remain serious issues that, unless solved, will plague the system and burden the taxpayer. They include:

A 7.5% earning assumption for the state plan which we believe to be unrealistically low given the reality that government paper is now yielding a mere 3%. This means that the unfunded liability for the state plans for state workers and teachers is not just $7.3 billion, but much larger, and this, in turn, means that the real costs of fixing the state plans have not been accurately fixed.

Underfunded MERS plans such as those in Providence and Cranston are vastly underfunded and, upon passage of this legislation, we will need fast-track legislation to deal with municipal pension plans.

Other Post Employment Benefits have undfunded liabilities in the billions and may, in fact, dwarf the pension liabilities. Their total must be accurately identified and the problem dealt with.

We remain concerned about re-amortization and the increased costs that will be incurred in the out years, particularly if the interest rate assumption is unrealistically carried on.

There remain serious implications for the state budget for the next year and those following. RI is in a poor position to increase its already high tax structure at the state and local levels.

In spite of these concerns, let there be no misunderstanding of our position: We urge the adoption of the plan now before you.

The Officers, Directors and members of RISC recognize the enormity of the challenge you and your colleagues face as you address this complicated and complex set of problems. This is a seminal moment for you, for your General Assembly partners, for the pensioners and for the taxpayers whose financial future will be impacted. We all wish that this problem had never occurred, but it has, and it will require your courage and determination to fix it.

As you all know, the issue now before you has attracted the attention of leaders in other states, as well as other parties facing a similar challenge. We join with them, and with those who have or will appear before you in these hearings to support the proposed pension plan, in the hope that this legislation will be adopted and that a major step forward will be undertaken.

Thank you and please accept our best wishes for your success!