For Ms. Raimondo, persuading the state legislature to do radical pension surgery was a matter of explaining the depths of the problems. She began a series of town hall meetings, where she said that the state had promised its workers far more than it could deliver. The mismatch was so big that if the pension system collapsed, it could take the state down with it, she warned.
And then, in the middle of her road show, the small city of Central Falls went bankrupt. It had never joined the state pension system, preferring to run its own plan, and now its pension fund for police officers and firefighters had run completely out of money. The pensions of retirees, some elderly and infirm, were cut sharply.
As states and municipalities struggle with rising pension costs, the governor, legislature and labor organizations in Rhode Island were able to agree on reductions to pension obligations and avoid tax increases or other financial burdens. Here are some of the most significant changes.
Cost of living adjustments
Before: Retirees’ pensions increased by 3 percent each year, compounded.
After: Annual increases for retirees are suspended until the pension system is at least 80 percent funded; when they resume, the rate of increase will apply only to the first $25,000 of a retiree’s pension.
Defined benefit plan
Before: Workers earned credits toward a predetermined benefit with each year of work. Pensions could range as high as 80 percent of a worker’s salary, not counting annual increases.
After: Workers keep the pension credits they have earned through 2012, but for future years of work they will earn smaller annual credits.
Defined contributions
Before: An optional deferred compensation plan was available.
After: Workers get a mandatory defined-contribution plan, run by an outside vendor. They must contribute 5 percent of their pay; the state adds 1 percent. Workers choose their own investment options.
Retirement age
Before: Full pension at 62.
After: Retirement ages match Social Security standards.