Pension Plan Unveiled: EG Legislators React

After months of discussion and high-profile coverage, a 124-page proposal on pension reform hit the floor of the General Assembly Tuesday afternoon, to be taken up by state legislators in a special session.

For East Greenwich legislators, it wasn’t a moment too soon - in fact, for Rep. Bob Watson, it was 15 years late, and even relative newcomer Sen. Dawson Hodgson lamented that his proposal to freeze COLAs could have been enacted last spring.

The plan put forth Tuesday by General Treasurer Gina Raimondo and Governor Lincoln Chafee would cut $3 billion off the $7.3-billion in unfunded commitments that state and local leaders have made to their retirees and current-day workers. It would also reduce considerably what municipalities like East Greenwich thought they were going to have to pay. Without any change, local pension costs for the next fiscal year will increase by some $2.3 million, bringing the total line item in the budget to just under $5 million annually.

“There’s a lot in the package that I like,” said Hodgson, who represents parts of North Kingstown and East Greenwich. “I have some concerns on the municipal side - that package seems a bit rushed. But we have a couple of weeks before it becomes law” to fine-tune it.

Hodgson said he was very glad that Chafee had prevailed in making sure that the proposal included underfunded municipal systems that are not part of the state system. East Greenwich does not have such a system. Coventry, alternatively, does.

“Essentially, any plan that’s under a 60 percent [funded] ratio is going to be subject to the state oversight measures,” said Hodgson. “Together, they are going to basically work out a rescue plan.”

While Hodgson said he liked where the overall plan was going, he was concerned with the amount of re-amortization called for in the proposal. “All these reforms get us to about halfway there. The rest will be through re-amortization,” he said.

Reamortization is when a borrower pays down some part of a debt and the rest of the debt repayment is spread out over a decided-upon number of months. In other words, if you owe $200,000 over 20 years and you pay $40,000 in a lump sum in year two, the remaining debt would be recalculated over a newly determined period of time (say, 20 months from now), lowering the monthly bill.

“It’s that reluctant last piece of the puzzle that you want to be as little as possible,” explained Hodgson. “So it’s bigger then I’d like.”

The single biggest part of the plan is suspending COLAs - the 3 percent cost of living adjustments added to pension payouts every year.

"It’s a no-brainer,” doing that, said Hodgson. “It’s tough for the people it affects, but it’s not a decrease in benefits.... I see suspension of COLAs as a matter of equity between retirees and current workers.” Hodgson said that current workers would still have to absorb larger reductions as a result of this plan.

According to Rep. Bob Watson, the automatic COLA was only enacted by the state legislature in the 1990s, “when we were fat and happy.” In the end however, he said, “that’s a presumption we found out we can’t necessarily afford.”

Watson pointed out when it came to municipal pension programs, “we were pretty responsible in East Greenwich.

“Does everybody in the state have a duty to all the municipalities with problems?” he said. “I don’t think we have a choice.”

He expressed frustration that a problem that was seen as far back as 1995 - when then-Gov. Lincoln Almond raised the issue - has been ignored until now. “This isn’t new math. There is nothing original per se about these issues,” Watson said.

“Is this a permanent fix forever of our pension system? That’s unlikely,” said Hodgson. Still, he said, “I like what I’m hearing. I’m encouraged. I do feel we have a mandate.”