PROVIDENCE, R.I. — Rhode Island is the nation’s smallest state, but its pension problem may well be the largest in the land.
The state is on the hook for billions of dollars in pension benefits owed to police officers, firefighters, teachers, judges and state workers. But the money’s not there. Projected investment gains never happened. State actuarial projections failed to keep up with public workers who are retiring earlier and living longer.
Estimates put Rhode Island’s unfunded liability for public workers’ pensions at $7 billion, slightly less than the entire state budget for one year. To make good on promises to public workers, the state must pour more and more into the pension system every year, from $319 million in 2011 to $765 million in 2015 to $1.3 billion in 2028.
Ohio, Illinois, California and several other states face even larger unfunded pension costs, but when Rhode Island’s cost is divided among its 1 million residents, it becomes clear that it has one of the weakest pension systems in the nation.
“We kind of go back and forth with Illinois as to who is last,” said Treasurer Gina Raimondo, who took office in January and has made the pension problem her top priority. Ms. Raimondo and Gov. Lincoln Chafee are working on a pension overhaul bill they hope to submit to lawmakers soon.
The General Assembly plans a special session next month aimed at revamping the retirement system. Public workers will watch closely as lawmakers tinker with retirement benefits that many say they’ve been counting on for years.
“We have an obligation to defend and protect the benefits our members were promised,” said George Nee, president of the Rhode Island AFL-CIO. The union has formed a coalition with other groups that represent public employees to lobby lawmakers during the special session.
Nearly every state has grappled with its own pension predicaments as they face ever more expensive retirement benefits, huge investment losses and recession-induced budget deficits. The Pew Center on the States released a report earlier this year that found states face a collective gap of $1.26 trillion between what they have promised public workers and what they have set aside to meet those promises.
States have looked at different ways to rein in pension costs. Lawmakers in 15 states including Arizona, Nebraska, Maryland and New Jersey voted this year to increase the amount that public workers contribute toward their retirement, according to a survey by the National Conference of State Legislatures. Fourteen states voted to raise retirement ages or increase the time an employee must work before being eligible for benefits.
Rhode Island lawmakers many of whom were elected with union support are keenly aware of the political pressures surrounding the pension debate. They say that while state workers may lose some benefits, they would gain if the pension system is put on a secure footing.
“This is not about us-versus-them,” Ms. Raimondo said. “The system we have today isn’t secure. It isn’t sustainable, and many scenarios show it running out of money.”
Here’s what’s on the table: trim benefits, limit automatic cost-of-living increases, raise retirement ages, require workers to pay more for their own retirement or refinance the state’s pension debt to buy time. Each comes with political or financial pain.
Most members of the General Assembly’s small Republican minority favor more aggressive cuts to benefits. Sen. Bethany Moura, a Cumberland Republican, said she favors eliminating automatic cost-of-living increases.
“In the private sector you don’t get a raise ‘just because.’ You get a raise because the company is generating the revenue to support it,” she said. “Well, the state of Rhode Island is not generating the revenue to support it right now.”