News & Politics  
comments_image Comments

Will Pension Cuts in Rhode Island Become a Template for the Next Round of Attacks on Workers?

If you thought retiring would help you avoid the ruination of living standards brought on by the economic crisis, Rhode Island’s pension overhaul just proved you wrong.

  This piece was originally published by Labor Notes. Come to the Labor Notes conference May 4-6 in Chicago, the biggest gathering of grassroots labor activists and all-around troublemakers out there! More than 100 workshops and meetings to ‘put the movement back in the labor movement.’  

If you thought retiring would help you avoid the ruination of living standards brought on by the economic crisis, Rhode Island’s pension overhaul just proved you wrong.

The changes to the pension system passed last November affect every public employee—current, retired, or prospective. The retirement age rose from 62 to 67 for new hires, and somewhere in between for current employees.

The overhaul moves all public employees into a “hybrid” system, combining a defined benefit plan with a 401k-style plan, thus shifting risk for bad investments onto workers. And it freezes cost-of-living adjustments for all retirees and retirees-to-be for 19 years, sending their standard of living tumbling.

The drama began in spring 2011, when newly elected state Treasurer Gina Raimondo, a Democrat, and Governor Lincoln Chafee, an independent, began focusing on the state’s unfunded pension liability and the looming crisis it represented.

Both politicians had been enthusiastically supported by the labor movement, partially on the basis that they would not touch pensions. But now they argued that the state had on hand only about half the money it would need to pay pensions for state workers and teachers over the coming decades.

The amount that the state owed but didn’t have was the “unfunded liability,” and to make the fund stable, Raimondo and Chafee argued, it had to be funded at a level closer to 80 percent. That’s the “green” level that private sector pensions need to reach under the federal Pension Protection Act.

But that rule doesn’t have to apply to governments. When a corporation is bankrupt, retirees run the risk that pension funds will disappear with the company. Thus workers seek to have much lower unfunded liabilities.

But when a government goes bankrupt, it does not disappear. Even if its pension fund shrinks, it can still be raised again during better times or through increased revenues. The concern around the “unfunded liability” in this instance was used to cut benefits and hurt workers.


In the media, free-market conventional wisdom pushed along an argument for bolstering the fund while avoiding increases to Rhode Island taxpayers. As the market was not likely to perform well enough to make up the shortfall, the only source left was workers’ pockets.

While Rhode Island teachers had always paid into the fund at rates of 9.5 percent of income, and state workers at 8.75 percent, the same was not true of the state. Rhode Island had raided the fund in the 1990s and never made up the difference.

Further problems came with Republican Governor Donald Carcieri in the 2000s. He cut state agency staffing levels and forced state workers into retirement early, thus reducing the base of workers paying into the fund.

The real tipping point came in April 2011, when the state Retirement Board voted to lower the projected rate of return on investment from 8.25 percent to 7.5 percent. By one change in accounting, the board suddenly increased the unfunded liability by $1.4 million and doubled the burden on state agencies and local school districts.

Said pension policy analyst Tom Sgouros, “It’s the triumph of the technocrats who make tremendously value-laden judgments and disguise it as technical details.”

The now-inevitable move to cut benefits sped forward in August, when the city of Central Falls went bankrupt and retirees there saw their pensions cut in half.

See more stories tagged with: