The Rhode Island Supreme Court’s reaffirmation of a 2015 pension overhaul settlement is a credit positive for the state and its municipalities, said Moody’s Investors Service.
“While merely preserving current pension liabilities, the court's decision removes lingering uncertainty surrounding the legal status of reforms previously agreed to via settlement,” Moody’s said of the court’s May 25 ruling.
Justices ruled that found that a lower court approving the settlement appropriately considered the objections, and that the settlement was fair and reasonable.
Rhode Island enacted numerous changes to state and municipal employee pension benefits in 2009, 2010 and again in 2011 through the Rhode Island Retirement Security Act. Gina Raimondo, then the state’s general treasurer and now the governor seeking election to a second term, championed the changes.
Among other changes, the overhaul reduced the aggregate unfunded liability of the Employees' Retirement System of Rhode Island by nearly 40% as of the plan's June 2010 valuation snapshot. The changes also prevented the state's fiscal 2013 contribution for its employees' pensions from spiking to 36% of payroll from 23%.
Following numerous lawsuits, Rhode Island reached a settlement in 2015 that largely preserved the pension savings the law generated. Two plaintiff groups continued a legal challenge against the benefit cuts since the settlement.
The court’s upholding the settlement “removes any uncertainty surrounding Rhode Island's pension benefit reforms, which produced substantial liability and cost reductions,” Moody’s said.
In Moody’s most recent survey of the 50 states, which covered fiscal 2016 government reporting, Rhode Island's $5.7 billion adjusted net pension liability amounted to 9.9% of its gross domestic product, or 15th highest among the states.
Based on the state's fiscal 2017 reporting, the liability was $6.7 billion.
Moody’s rates Rhode Island’s general obligation bonds Aa2. Fitch Ratings and S&P Global Ratings assign AA. All three have stable outlooks.