PROVIDENCE, R.I. (WPRI) – The shortfall in Rhode Island’s state pension system will total $4.9 billion once Gov. Gina Raimondo signs into law a legal settlement with unions and retirees that got included in the state budget, according to an actuarial analysis.
A June 10 letter from number-crunchers at the state’s outside actuary, Gabriel Roeder Smith & Co. of Texas, confirmed that the pension settlement’s provisions will increase the size of the unfunded pension liability by $290 million, from $4.6 billion to $4.9 billion, using beneficiary data as of June 30, 2014.
“Our calculations are based upon assumptions regarding future events, which may or may not materialize,” the actuaries emphasized. “Please bear in mind that actual results could deviate significantly from our projections, depending on actual plan experience.”
The June 10 letter does not include estimates of the shortfalls in the state’s comparatively small pension plans for younger judges and state police officers. “Analysis on those plans will be provided at a later time,” it said.
The letter also does not include a revised estimate of what the pension shortfall would be if the state’s 2011 pension overhaul had never been passed and the original benefit plan had remained in place. But Gabriel Roeder Smith previously estimated that the shortfall would have been $8.9 billion as of June 30, 2013 with the pre-2011 system in place, compared with $4.8 billion on the same date after the overhaul, for a savings of just over $4 billion, or 46%.
The pension settlement is scheduled to take effect Wednesday, on the first day of the new state fiscal year, as long as Raimondo signs the budget before that. Under the terms of the agreement, workers and retirees agreed to drop their legal challenge over the constitutionality of the 2011 pension overhaul in exchange for some benefit increases. A judge approved the proposal June 9, and lawmakers soon followed suit.
A spokeswoman for General Treasurer Seth Magaziner, who oversees the pension system, said his office plans to pay two immediate provisions of the settlement – a one-time cost-of-living adjustment and a one-time $500 stipend – “as soon as administratively possible after the law takes effect July 1.”
State and local taxpayers in Rhode Island will contribute $494 million to the pension system in the 2016-17 fiscal year under the settlement, up from $479 million under current law, the actuary’s letter says. That amount is projected to keep rising in the coming years as the state continues to pay down the liability it built up over many decades of unfunded pension promises.
Analysts at Moody’s Investors Service, which has been tracking the pension litigation and warning about its impact on the state’s finances, last week described the settlement as “a credit-positive conclusion to a legal dispute that has lasted since the state implemented the first of several reforms in 2009.”
Roughly 800 of the nearly 60,000 workers and retirees impacted by the pension changes opted out of the settlement: active police officers as well as active Cranston firefighters. Motions in their ongoing lawsuits have been docketed for July 29.Ted Nesi (email@example.com) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi