Governor Lincoln D. Chafee, General Treasurer Gina M. Raimondo and attorneys representing public employee unions and retiree coalitions challenging changes to Rhode Island's state-administered pension system today announced a settlement agreement achieved through court-ordered mediation. Parties were ordered into mediation by Superior Court Judge Sarah Taft-Carter in January 2013. According to a joint statement issued by the parties, "The settlement agreement marks an important first step forward, and the beginning of a process that will benefit all Rhode Islanders. 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 proposal we jointly offer provides certainty and predictability for our public servants and municipalities to appropriately plan for the future We believe this proposal is fair for our public employees, retirees, taxpayers and cities and towns." With the help of the Federal Mediation and Conciliation Service, the parties to this litigation have worked together to reach this proposed settlement. Court-ordered mediation is a common, widely-used dispute resolution mechanism with a long track record of success in the United States. This settlement will resolve six lawsuits challenging 2009, 2010 and 2011 changes to the state's pension laws.
Next steps: Timeline and Process - Plaintiffs' actions: Mail-ballot voting will proceed in the coming weeks. - Court action: Judge Taft-Carter will conduct fairness hearings and determine whether or not to approve the settlement agreement. - General Assembly action: The General Assembly will be asked to take action on the legislation in the settlement agreement.
As this process unfolds, all parties will support and advocate for passage of the proposed legislation, and have agreed to advocate only for the passage of the settlement agreement legislation. Terms of the Proposal This settlement agreement retains structural elements of the Rhode Island Retirement Security Act of 2011, including the move to a combined defined benefit and defined contribution plan, an increased retirement age, and a cost-of-living adjustment (COLA) suspension until the system is at a stronger funding level.
Settlement changes include:
Cost-of-living-adjustment - COLA timing change: While the COLA will still remain suspended until the system is 80 percent funded, intermittent COLAs will be issued every four years, instead of once every five years. - COLA formula: COLA is still paid on first $25,000 base but with a new formula that takes into account investment returns and the Consumer Price Index (CPI). - There will be a one-time two percent COLA after passage of the legislation.
Employees with 20 or more years of service - Shift back into a defined benefit plan with a two percent annual accrual with higher employee contribution rates (contribution rate: 11 percent for state employees and teachers; 8.25 percent for MERS general employees (9.25 percent with COLA)). Employees with 10 to 20 years of service - Employer contributions to the defined contribution plan increase from one percent to 1.25 percent for employees with 10 to 15 years of service and 1.50 percent for employees with 15 to 20 years of service. Additional transition rule for retirement age - Members employed on June 30, 2012, will become eligible to retire at the earlier of age 65 with 30 years of service or their current Rhode Island Retirement Security Act retirement age. Employees making less than $35,000 - No longer charged $40 annual defined contribution administrative fee. There are additional changes, including changes to the benefits for firefighters, police officers, and correctional officers. Additional information can be obtained at www.ripensioninfo.org. Costs of the Settlement Agreement This proposal preserves 95 percent of the savings from the Rhode Island Retirement Security Act of 2011. The costs of the proposal are based on the June 30, 2013, valuation and will not take effect until FY2016. - The annual required contribution (ARC) increases by 5 percent. - The FY16 employer (taxpayer) contribution for the state is about $293 million (currently $280 million). - The FY16 employer (taxpayer) contribution for the municipalities is about $217 million (currently $206 million). - The FY16 employer (taxpayer) contribution for the entire system is about $510 million (currently $486 million). - The total unfunded liability will be about $5 billion (currently $4.8 billion). - The percent funded for state employees and teachers will be about 56 percent (currently 57 percent). - The aggregate average percent funded for MERS general employees will be about 82 percent (currently 83 percent). - The aggregate average percent funded for MERS police and fire will be about 77 percent (currently 79.8 percent).