This is an eye-opening but sad tale based for the most part, on the report, “Truth in Numbers” by Monique Morrissey of the Economic Policy Institute, June 20, 2013. To be as brief as possible, the information from the report provides the background to the failures that poisoned the financial stability of Rhode Island’s Employee Retirement System. There was one very noteworthy, positive facet that engenders some encouragement and it is important that it be highlighted at the very beginning. That is, the state employees and the teachers met their every obligation. They, without fail, made their payments to the pension plan as required by law.
The very first most egregious dose of a destructive potion was that many employers (cities, towns, and state) failed repeatedly to pay their required matching assessments. The next destructive pill was that the state administration and General Assembly made no serious effort to crack down on those who were delinquent in their obligations. This caused a serious deficit to the retirement system that continued for many years until it was bordering on insolvency. Additionally, the funding ratio was further harmed by various small tweaks effectuated by actuarial assumptions.
Further harm to the system was the shift of pension fund investments to risky (with costly commission fees) hedge funds. This was a change made by the investment board under the leadership of General Treasurer Gina Raimondo. There were critics of this shift at the time who warned and predicted lower returns as compared to what would be gleaned by more lucrative forms. As predicted by critics, the poor decision to shift to hedge funds performed so poorly that it further exacerbated the insolvency of the system.
The cumulative effect of all the missteps listed above resulted in state workers and teachers losing between 50 and 70 percent of their defined benefits. One can easily understand the angst and concern of those employees who had suffered such losses.
Unfortunately, the unhappy story continued on its ignominious path. The tenuous problem had finally reached a climax and drastic action was called for by Treasurer Raimondo. Gov. Lincoln Chafee and the General Assembly were persuaded to enact a law to overhaul the retirement system in 2011. The law made major revisions. One onerous change was the elimination of the cost of living (COLA) provision that had long been the norm. The understanding was that COLA would be restored when the pension fund attained an 80 percent funding level.
The consensus to restore the COLA did not last long. In 2016, the now-governor Raimondo in concert with the General Assembly made a major revision that affected the standard practice of depositing surplus funds to the pension system. The FY2016 Appropriations Act for the fiscal year ending June 30, 2016, directed that the surplus monies ordinarily assigned to the pension fund would no longer be continued. The General Assembly approved the bill, and Gov. Raimondo signed the bill into law. To emphasize this breach of trust, it bears repeating that surplus monies would no longer be used to restore the pension fund to solvency. Even the most optimistic person can now understand that state workers and teachers will never have COLA re-instituted.
This saga has reached its end: Those who religiously followed and complied with all the rules take the hit and are severely punished, and those who mismanaged the entire process and perpetrated great anguish and hardship are deemed to be harmless and are unpunished.
The reader may now form his/her own conclusions on competent management, good-faith, fair treatment, and promises kept by the major characters in the story. No speculation is necessary to ascertain the grade that the disrespected state workers and teachers have assigned to those who performed so negligently.