Rhode Island considers radical moves as pensions put state on brink

[Nuclear Unicorn]

PROVIDENCE, R.I. — This state has barely a million residents, but it is at least $6.8 billion short when it comes to funding pension plans for retired teachers, police officers and other public employees.

State Treasurer Gina M. Raimondo (D) said that per capita, Rhode Island has the nation’s largest unfunded pension liability. But if the Ocean State’s pension problem is among the country’s most severe, so are the remedies being considered to solve it.

An ongoing pension reform effort is likely to result in reduced benefits for 51,000 public workers and retirees. Officials are pondering lowering retirement payments, replacing part of the guaranteed pensions with 401(k)-type accounts, and sharply reducing generous cost-of-living increases enjoyed by retirees. The Rhode Island legislature is expected to consider changes next month during a special session.

http://www.washingtonpost.com/business/economy/rhode-island-considers-radical-moves-as-pensions-put-state-on-brink/2011/08/31/gIQApBjz4J_story.html

Where's the money?

Surely, when the benefit offers were being crafted someone sat down and computed -- Benefit Pay-Out Amount x Avg Retirement Age x Retiree Life Expectancy = Total Commitment cost

The money was there. The promises were made.

Where's the money?

[aquart]

1. Who stole the pension money?

[drm604]

3. Like everything else,

it went away when the bubble burst.

[hack89]

7. Nobody stole it

the state and municipal governments never contributed enough to the pension funds. Toss in unreasonable assumptions on investment performance to avoid hard choices and you get the mess we have now.

[JDPriestly]

15. In Ohio, the state pension fund wasted the teachers' money

on a new building and all kinds of perks for themselves. At least that is what I have heard from my mother, a retired teacher there.

[Nuclear Unicorn]

25. Good grief

If a private business did that people would be prosecuted for embezzlement or some such. The DoJ should be investigating.

[SoCalDem]

32. "not funding it" is tantamount to stealing it.

Workers accepted pension adjustments in lieu of raises (in many cases), so either their labor was stole for decades, or their pensions were stolen.

It always amazes me when companies feign ignorance when they have had the services of actuaries at their beck and call, since forever, and the boomer generation came as no surprise, so there is NO excuse for what;s happening now.. well there is a reason.. malfeasance in office, criminal negligence and fraud, as well.

[adigal]

28. Pension managers put our funds in risky mortgages with their crony

friend on Wall Street.

Funny, I know two hedge fund managers from Wall Street, and they haven't sold their house in the Hamptons, and just bought another 6 million dollar apartment in NYC. Funny.

[Proud Public Servant]

2. Well, here's your problem

See this?

Surely, when the benefit offers were being crafted someone sat down and computed -- Benefit Pay-Out Amount x Avg Retirement Age x Retiree Life Expectancy = Total Commitment cost

As a former Rhode Island resident and someone with family in the state (one of whom used to be a public worker), I absolutely GUARANTEE nobody in teh state government ever did that math. No way, no how.

[Blue_Tires]

27. as another former RI resident, it wouldn't surprise me...

[DrunkenBoat]

40. That would be illegal. I guarantee you, someone *did* do it.

[Creideiki]

4. How much did the state lose due to the economic meltdown caused by the uber-rich?

And let's quit playing "blame the working class". Accepting the rightwing frame leads to logical problems.

[Nuclear Unicorn]

5. I'm definitely NOT blaming the working class.

The workers here are the victims.

They're due their money and an explanation.

And whoever lost their money should be held accountable.

[hack89]

9. The unions actually played a huge role in this debacle.

there is no state in America where unions hold as much power as they do in Rhode Island. Not only can you not get elected without union support, but union officials are well represented in legislative staffs and committees. They wield enormous power.
The price for their support has always been generous benefits for their workers. Many politicians gave them what they wanted with no thought for the consequences. Those same politicians then consistently neglected to fund those pension funds at adequate levels because the cost was too high and they needed to fund other services.

This problem was not caused by the recent economic meltdown - this problem was recognized over a decade ago. It was simply ignored.

Now we are between a rock and a hard place. To adequately fund all promised benefits would gut every other government service - education, senior care, people with disabilities, mass transit. There is simply not enough money to go around.

[marmar]

16. ........

[hack89]

19. I live here - we have a well deserved reputation for corruption. nt

[Name removed]

24. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Yo_Mama]

31. I have to second that.

Banks and other financial companies have a lot at stake in the fiscal stability of localities and states, and back in the very late 1990s, early 2000 there was plenty of study on the longer term prospects for state and local governments. It was more speculative then, but states like IL, NJ and RI were already identified back then as a probably having an unfunded retirement problem.

This dates back before Bush took office, even. Most such actuarial problems are decades in the making. By the middle of the 2000s the funding ratios for big public pension plans were generally getting worse rather than better:
http://www.gao.gov/products/GAO-08-223

But let's really go back. Here's a 1980 GAO doc about the problem THEN. The standards being discussed then never were imposed, because governments and unions did not want to be forced to meet standard imposed on private pension plans:
http://archive.gao.gov/auditpapr2pdf2/112338.pdf

Out of 72 state and local plans surveyed, in 1980 only 19 met the minimum requirements for private plans. Here's the long version of that survey, completed in 1979 (139 pages):
http://archive.gao.gov/f0302/110257.pdf

So the answer to the Original Poster's question is that not only did state governments not sit down and do the math - when outsiders showed up and did the math for them, they refused to come up with funding because it was politically unfeasible. And yes, in many cases unions knew this but were content to get the promise even if the plans weren't funded, figuring eventually the federal government would bail out the states and local governments.

[okieinpain]

20. so you want the uber-rich to refund the pension. just asking n/t.

[hack89]

6. The money was never there.

You made an error when you assumed that any thought went into the offers - most of these benefits were paybacks for union support in elections.

The money was never there - the state and cities were warned over a decade ago that they were not contributing enough to pension funds. The politicians did nothing except kick the can down the road for someone else to fix.

[mike_c]

8. then the money WAS there-- they just spent it on other things....

As usual, the real problem is poor fiscal planning and what OUGHT to be criminal negligence. Pension funds are ultimately generated by working people-- labor creates capital. Instead of investing that money where they promised to invest it-- that promise is part of the arrangement whereby working people create the capital in the first place-- the rat bastards used it to pay for other stuff, profits for investors, outrageous compensation for executives, and so on. The money was always there. They stole it from workers.

[hack89]

10. No - the money was used for a massive increase in state spending

I also suspect you have no idea just how much power the unions have in RI - they are the bedrock of Democratic political dominance in the state. There is no state in America where the workers have more power.

[mike_c]

22. that's what I said...

"to pay for other stuff"

[Nuclear Unicorn]

11. I'm not denying profiteering in the corporate world but we're talking public pensions here

How does a state pay investor profits or executive compensation?

Did RI affect a bailout of its own and use the money from the pension fund? Honest question.

[hack89]

12. No money was taken from the pension funds - the issue is chronic underfunding. nt

[Nuclear Unicorn]

26. Didn't the union leaders review the proposals before signing off on them?

honest question.

Unlike politicians, if I understand correctly, union officers aren't term-limited and can actually stay in their offices for quite a while. That means any underfunded plan could/would come due on their watch.

I'd think simple self-preservation would have them guard against the scenario you describe.

[hack89]

33. The union officials won't suffer

they will simply blame the politicians - after all, the unions don't control state or city spending. The contracts would have been affordable if the pension funds were adequately funded. Now the unions do bear some blame for not keeping track of that.

[mike_c]

23. I'm a public employee union member and my boss makes nearly...

...half a million dollars annually. Increasingly, public institutions are run like corporations, with high executive compensation and bonuses "necessary" to recruit "talent."

My comments about investors and executive compensation were meant as more general responses to the problem of underfunding pension funds though. My REAL point is that those who had the responsibility to fund the pensions, whether state legislators or corporate executives, spent the money elsewhere rather than honoring their promise to workers.

[Dreamer Tatum]

13. Do you have a WHIT of proof for that? Any at all? nt

[okieinpain]

21. sounds familiar. n/t.

[Broderick]

14. But we are all distracted in Wisconsin

The waters were tested, the resources lavished in Wisconsin and other states are cruising forward in draconian fashion to destroy workers rights all across the nation. Illinois set to lay off how many workers? The list is innumerable. We are screwed.

[SoCalDem]

17. Fat cats legislators have been stealing it forever

and hoping for a miracle when they had to start paying it out.. I guess they all thought the Boomer generation was not real..or that we would decide to not take the retirement we paid into our whole lives, and passed up raises for.

[DrunkenBoat]

18. What they don't tell you about that so-called "unfunded liability" is the window of time.

10 to 1 it's very long & this is garbage. Pensions aren't the cause of RI's financial problems, just like Social Security isn't the cause of the US's financial problems.

Nor will reneging on pensions or Social Security solve any problems.

[hack89]

29. So you propose ignoring the problem for another decade or so?

the pensions have to be funded - it is cheaper to do it now rather than later. Promised benefits can't be funded out of current year operating budgets - there is not enough money. If the money is not invested and allowed to grow there will never be enough money.

There are 155 pension funds in RI - here is detailed coverage with all the facts you would need.

http://www.projo.com/news/pensions/

[DrunkenBoat]

35. "So, you...blah blah blah straw man." Not worth it.

[hack89]

36. Then step aside while we fix our problem, OK? nt

[DrunkenBoat]

37. "we" "fix our problem" = lol. Rob pensioners, you mean.

[hack89]

38. No - we are broke. Plain and simple.

we are a small and relatively poor state. We can't afford higher taxes.

[DrunkenBoat]

39. I doubt it.

[hack89]

41. Doubt what? That we are broke?

or that we can't pay higher taxes?

[hack89]

30. There are 155 seperate public employee pension plans in RI

It is a mess of monstrous proportions. Some are state but many are city plans.

Here is a detailed report of the entire mess:

These stories, charts and databases are all pieces of The Pension Puzzle, The Providence Journal's continuing team investigation of Rhode Island's system of public pensions and benefits.

Rhode Island has at least 155 pension plans covering employees of state and local governments; an alarming $9.4 billion less than what is needed to pay current and future retirees, called the "unfunded pension liability," and not enough money set aside for a projected $2.4 billion in health benefits promised to public retirees.

The Journal is investigating how Rhode Island's problem got so big, who is accountable and what it means to taxpayers

http://www.projo.com/news/pensions/

[bluestate10]

34. The state next door faced a similar issue with health care costs.

Towns and cities in the state of Massachusetts had their own health care plans that stood to bankrupt many of them. The legislature of the state passed a bill that forced cities and towns to join the healthier state plan.