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Deal is announced in landmark pension case in RI

Published on NewsOK Modified: February 14, 2014 at 5:48 pm •  Published: February 14, 2014

PROVIDENCE, R.I. (AP) — Rhode Island state leaders and union officials announced a deal Friday that would end legal wrangling over a landmark pension overhaul that's been a model for other states seeking to rein in runaway pension costs.

The proposed settlement must win legislative approval and the endorsement of union members and retirees. But if enacted, the changes would retain the most significant portions of the 2011 pension overhaul, which raised retirement ages and suspended pension benefits to save billions of dollars in future costs.

"This is a very good deal for the people in the pension system and the people of Rhode Island," said Treasurer Gina Raimondo, a Democrat who crafted the original law and is now running for governor largely on her success in bringing the pension system in check. "I do hope other states follow our lead. We have shown that Rhode Islanders can come together and tackle big issues."

Rhode Island had one of the most troubled pension systems in the nation before lawmakers passed the sweeping changes during a special legislative session in 2011. The so-called Rhode Island Retirement Security Act was designed to save an estimated $4 billion for the economically troubled state over the next 20 years.

But many of the 66,000 state workers, teachers and municipal workers and retirees covered by the state retirement system complained that the changes amounted to broken promises and an unconstitutional change to their benefits. Their legal challenge has been the subject of closed-door settlement talks for more than a year.

The proposed settlement would give retirees a one-time 2 percent pension increase on the first $25,000 of their pension, and then increases of up to 3.5 percent every four years beginning in 2017.

The existing law suspended the increases for five years. Regular increases will return when the state's retirement fund is 80 percent funded. Currently it's roughly 60 percent funded.

Also, as part of the deal, employees with 20 years of service can keep their existing pension plan instead of receiving a hybrid plan that combines a pension with a 401(k)-type account. All other workers would receive the hybrid plan, though governments would contribute slightly more to workers with more years of service.

Employees would also pay slightly more toward their own retirement than under current law.

While workers and retirees won some concessions in the settlement, much of the significant portions of the 2011 law would remain. Lynette Labinger, lead counsel for the plaintiffs, said that while unions and retirees didn't get everything they might have wanted in the settlement, they'll receive pension increases far sooner than under current law. It also avoids what could be a risky legal fight.

"It provides certainty," Labinger said. "You don't usually get everything you want."

The settlement would raise the annual pension costs for the state and its cities and towns. In the fiscal year beginning July 1, 2015, the state would have to set aside an additional $13 million. Cities and towns would see their retirement bills increase by $11 million.

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