Rhode Island State Employees and Retirees Voting on Pension Cuts

Thousands of Rhode Island public employees and retirees have until the end of today, April 3, to submit their ballots on changes and cuts to their pension benefits.

Continue Reading Below

It’s part of a settlement negotiated between the state and its public sector labor unions.

Teachers, fire fighters and police officers are being asked to approve changes that include raising the retirement age, suspending pension benefit increases and lowering the cap for cost-of-living adjustments.

The Rhode Island Retirement Security Act, passed into law in 2011, was designed to save the state $4 billion over the next 20 years and shore up its poorly funded public pensions.

But retirees and public-sector labor unions sued to overturn the law.

The settlement, if approved, will stop the lawsuit and leave most of the changes to pension benefits intact.

Continue Reading Below

But the employee and retire vote is just step one; legislatures must also approve the settlement.

Rhode Island’s pensions are less than 60% fully funded and in 2011 they were almost $7 billion short. 

A pension that is 80% fully funded is considered healthy, and when Rhode Island’s public pensions reach that threshold some of the pension cuts will be restored.

The three large credit rating agencies all rate Rhode Island debt investment grade with a stable outlook, except Moody’s, which has a negative outlook.

Rhode Island is among the top 10 states with the highest yield spreads in the general obligation bond market, according to Thomson Reuters municipal market monitor.

In March, Rhode Island’s borrowing costs came down and debt was trading 38 basis points above the Thomson Reuters MMD triple-A GO curve.

Rhode Island debt for the previous 12 months traded at a spread 42 basis points above the curve.

If the public employees and retirees reject the settlement, a legal challenge will continue to  invalidate the pension reform law, which politicians and labor leaders say will be financially disastrous for the small state.

What do you think?

Click the button below to comment on this article.