State, unions reach settlement, liability grows by $232M
PBN FILE PHOTO/TRACY JENKINS
GOV. LINCOLN D. CHAFEE and General Treasurer Gina M. Raimondo's settlement with state and municipal worker unions, if approved by the courts and the General Assembly, takes the unions' lawsuits out of play, while adding an estimated $232 million to the state and municipal pensions' unfunded liability, and increases the payment that the state, towns and cities are expected to make toward their workers' retirement plans.
PROVIDENCE – Gov. Lincoln D. Chafee and General Treasurer Gina M. Raimondo have reached an agreement with representatives of government workers and retirees to soften the effects of the 2011 state pension overhaul, they announced Friday.
The settlement, a product of secret court-ordered mediation, will end a lawsuit brought by government employee unions and retirees to kill the pension law.
If approved by rank-and-file workers, the General Assembly and courts, the deal will cost the state and local governments an estimated $24.2 million in the fiscal year starting July 1, 2015. There would be no impact on city or state budgets this year or the fiscal year starting in July, state officials said.
The settlement keeps $3.9 billion of the $4.1 billion estimated reduction in estimated unfunded pension system liability achieved by the 2011 overhaul and the basic framework of its changes, such as an increase in the retirement age, suspension of annual cost-of-living increases and the creation of a hybrid defined contribution/defined benefit pension plan. As a result, the unfunded liability for the state and municipal plans increased by $232 million, based on June 30, 2013, valuations.
“This settlement agreement marks an important first step forward, and the beginning of a process that will benefit all Rhode Islanders,” Chafee and Raimondo said in a joint statement. “It is a proposal that we all support and jointly offer to the General Assembly, members of the retirement system, and to the public.”
The settlement marks a change of course for Raimondo, the architect of the pension overhaul, who resisted Chafee’s initial calls to negotiate with workers over the legislation.
To become law, the settlement will require majority approval of six separate blocks of worker-retirees, endorsement by the court and passage by state lawmakers.
In exchange for dropping the lawsuit, plaintiffs will receive a package of increased benefits including:
A one-time cost-of-living pension increase on 2 percent of the first $25,000 retirement allowance.
A reduction of the length of time between increases once the pension system is 80 percent funded or better – from five years to four years.
State employees, teachers and municipal employees with more than 20 years of service on June 30, 2012, will no longer participate in the defined-contribution plan, returning to a 100 percent defined-benefit plan.
A reduction in penalties for early retirement.
Those employed on June 30, 2012, will eligible to retire either at age 65 with 30 years of service or at the age in the pension overhaul formula.
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