Landmark pension overhaul legislation cleared Rhode Island's House and Senate finance committees in amended form Thursday night, and the General Assembly is scheduled to vote on the measure later this week.

A bill proposed by Gov. Lincoln Chafee and General Treasurer Gina Raimondo cleared the Senate panel by a 10-1 vote and the House panel by 13-2. Passage took minutes, ending a week that included 30 hours of testimony by municipal leaders, financial advisors, union representatives, and retirees.

Lawmakers adjusted the Chafee-Raimondo bill to call for cost-of-living adjustments, or COLA benefits, every five years provided the plan is 80% funded, moving most employees to hybrid pension plans that partially consist of 401(k)-style defined-contribution arrangements, and increasing the retirement age for current workers. Under the original proposal, workers might have had to wait up to 19 years for a pension increase.

Pension overhaul efforts in Rhode Island have generated national attention. "The proposed plan would be unprecedented, both in terms of the employees it would affect and the scope and scale of changes to their benefits," the Pew Center of the States wrote last week.

The state's pension plan in only 58.7% funded, according to Bloomberg data. A report last week by the Mercatus Center at George Mason University, using assumptions that would vastly increase the defined liabIlity of most public-sector pension plans, pegged the Ocean State's unfunded liability at $18 billion, nearly double what state officials estimate.

On Aug. 1, 19,000-population Central Falls filed for Chapter 9 bankruptcy protection, citing an $80 million hole in its pension plan.

Other municipalities and conduit issuers have sustained bond rating downgrades in the aftermath of the filing.

Fitch Ratings and Standard & Poor's rate the state's general obligation bonds at double-A, while Moody's Investors Service rates them Aa2.

Rhode Island stands to follow several other states, including Georgia and Utah, in putting new employees into a hybrid plan. But, according to the Pew Center, it would be the first to incorporate current employees as well.

Labor groups protested outside the capitol building in Providence throughout last week, saying the initial changes were too draconian, and promised to continue lobbying lawmakers.

"We'll talk to our representatives. There are always amendments," said George Nee, president of the Rhode Island AFL-CIO.

House Minority Leader Brian Newberry, R-North Smithfield, emphasized the need for compromise. "This bill is going to cause a lot of problems for a lot of people. We shouldn't be celebrating this. But it smoothes some of the rough spots around the edges," he said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.