Last month it was reported that Rhode Island had an unfunded pension liability of $5 billion, but now a new RIPEC study suggests that the amount could actually be double that amount, or $9.4 billion. To put that in perspective, that is $9,400 for every man, woman, and child in Rhode Island. According to The Providence Journal, the number is higher because the study accounting standards that took into account other retirement benefitis like health insurance. So, while the unfunded pension liability is $6.3 billion, those other obligations add up to $3.1 billion. This is why some communities are moving away from pensions:
Last week, Cranston Mayor Allan W. Fung announced a contract agreement with the local Teamsters union that will put future hires into 401(k)-like plans. Fung said the city, in addition to not being locked into future payments, will make contributions equivalent to 3 percent of each new employee’s pay, versus 5 percent for current employees, who are in the state municipal employee retirement system. The new employees will be required to contribute 3 percent of their pay, although they can contribute more, whereas employees with the traditional city pension must contribute 7 percent, he said.
Fung said he hopes Cranston’s move will “create a tidal shift or wave that kind of creates a shift in the mindset” on public-employee pensions.
He is not alone in looking at such changes.
Warwick Mayor Scott Avedisian said his city — in addition to being in year 14 of a 40-year plan to pay down some $200 million in unfunded pension liabilities — has formed a subcommittee that is running numbers and looking at possible changes. Defined-contribution plans are “one of the things we are looking at,” he said.
Not surprisingly, the unions are standing in the way of reform.
George Nee, president of the AFL-CIO of Rhode Island, said such changes are unnecessary if communities make the required annual contributions to the plans they approved.
“The concept is still a sound one if everyone plays by the rules,” he said. “Most of the problem has resulted from the fact that in a lot of instances the state … the cities and the towns did not make their contributions when they were required to do so.”
Nee said the union coalition opposes the 401(k) option “because it puts people at tremendous risk, as we have seen recently by the ups and downs of the stock market.”
Still, he acknowledged that he did not have a solution given the size of the unfunded liabilities.