Most observers considered the dramatic changes made to Rhode Island’s pension system the most significant accomplishment in state government in 2011.
In 2012, state officials, including pension-overhaul architect General Treasurer Gina M. Raimondo, face the more mundane, but still important, job of implementing the measures in that high-profile pension-reform bill. That includes creating the new 401(k)-style defined-contribution retirement benefit that will make up a portion of public-sector worker pensions and choosing a financial services firm to run that new plan.
“This is probably the most important thing we are doing this year,” Raimondo told the state Investment Commission at a recent meeting to hear pitches from the four semi-finalists competing for the state contract.
Why choosing the right firm for the job is important in some ways comes down to how divisive a topic scaling back cost-of-living pension increases were and how uncomfortable many workers were in sharing the risk of their retirement investments.
State public-employee unions opposed the bill intensely and lobbied against it in the General Assembly.
“This is the first time Rhode Island has offered a defined-contribution plan as a component of retirement benefits for public workers and it is important that we get it right,” Raimondo told Providence Business News after the state Investment Commission, which she leads, narrowed the field down to two finalists. “Immediately, 30,000 people go into this plan and the defined contribution will be a core source of retirement benefits. I take people’s retirement seriously.”
The other reason the plan is important is that, regardless of how the market performs, that part of the pension system cannot become underfunded like the defined-benefit pension system did.
As spelled out by the pension-overhaul bill, the defined-contribution plan will be part of a new hybrid system that also includes the old defined-contribution plan that workers have traditionally counted on for retirement.
Initially, the defined-contribution investments are estimated to be between $100 million and $150 million from the roughly 30,000 participants.
The winning bid is expected to handle all the bookkeeping, administration, education and customer service for the defined-contribution plans along with managing the funds.
The state is looking for a five-year contract with an option for two additional years. The winner is scheduled to be chosen by the Investment Commission on Monday, Feb. 27. The chosen firm is expected to start work in March and the plan will go live July 1.