PROVIDENCE — The high-stakes union challenge to the 2011 pension overhaul championed by state treasurer and Democratic candidate for governor Gina Raimondo is back on the court docket for next week.
Raimondo has made the sweeping rewrite of state pension law an issue in her campaign to succeed Governor Chafee, who is not seeking reelection. In a TV ad airing this week, she again takes credit for having “solved” the state’s pension crisis.
But the legal battle continues.
Superior Court Judge Sarah Taft Carter has scheduled a 9:30 a.m. hearing on Oct. 17 on a motion by the treasurer, the governor and the state retirement system for a jury trial in the long-running fight over the legality of the pension cuts aimed at reining in the exploding cost of Rhode Island’s public employee benefits.
The phalanx of unions that filed the lawsuit in June 2012 contend the cutbacks — which include the temporary suspension of the automatic “cost-of-living adjustments” for retirees — familiarly known as COLAs — are illegal .
Even though the pension benefits at issue are dictated by state law, not contract, the unions argued — and the judge agreed as a starting point for the case — that there was an implied contract.
The defendants want a jury — not a single judge to decide whether the 2011 rewrite of state pension law impaired a contract, whether the impairment was substantial and “whether there was a legitimate public policy purpose behind the legislation that is sufficient to justify the impairment of the alleged contractual rights.”
Even if the plaintiffs establish “beyond a reasonable doubt a substantial impairment of a contractual relationship,” the defendants’ filing says: “It must be decided whether there is a legitimate public purpose behind the government action and whether that purpose is sufficient to justify the impairment of contractual rights.”
The unions’ lawyers are asking the court to “restore and make whole” all of the retirement benefits that were either eliminated or reduced by the cost-cutting pension overhaul.
The cutbacks were aimed, in part, at stanching the flow of red ink.
In January 2011, newly elected treasurer Gina Raimondo identified what she called a very serious problem: the Rhode Island pension fund had paid out $331 million more in benefits the previous year than it took in. She said the state had reached a point where it was “eating into the principal” every month to make its monthly pension payroll.
“Eating into the principal,” she repeated for emphasis.
Despite the 2011 overhaul, the treasurer’s chief investment officer, Anne-Marie Fink, told the State Investment Commission recently that the gap has actually grown. She pegged it at $483 million during the year that ended on June 30, 2013.
More recent numbers are not yet available, but the funded ratio for the state employees plan was 56.2 percent and for the teachers’ plan 58.1 percent at that point.
The treasurer’s office has not yet responded fully to questions about how and why the shortfall has grown, and what it means for the longterm financial health of the state pension fund that covers tens of thousands of past and present public workers.
But it provides a backdrop for next week’s hearing on the defendants’ motion for a jury trial on the closely watched legal challenge by a coalition of state and local unions, including the largest state employees union: Council 94, American Federation of State, County & Municipal Employees.
And, in response to a Providence Journal inquiry, Raimondo spokeswoman Ashley Gingerella O’Shea, said: “The short-term negative cash flows were anticipated when the original pension solution was crafted and are being managed carefully by the State Investment Commission and Treasury staff.”
She elaborated: “In 2011, we were facing a pension system in crisis and the goal was to put the plan on a safe, secure path for the long term, and not just find a quick fix. … The final Rhode Island solution included the adoption of realistic actuarial assumptions; reductions in future benefit accruals and an extended period to pay off the plan’s unfunded liabilities (reamortization).
“One of the hallmarks of the 2011 reforms was that existing benefits being paid to retirees (plan benefit outflows) were not reduced. While the 2011 changes produced anticipated short-term increases in negative cash flow, the reforms are working as intended. Current funding levels are realistic for the state and its municipalities, and the new combination defined benefit/defined contribution plan substantially reduces the likelihood of future unfunded liabilities.”
kgregg@providencejournal.com
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