Rhode Island’s General Assembly was scheduled to meet late Tuesday afternoon in special session to consider overhauling the state’s pension system.

Gov. Lincoln Chafee and General Treasurer Gina Raimondo were scheduled to introduce proposed changes. They include combine traditional pensions with 401(k)-style retirement accounts; raising the retirement ages for most public workers; momentarily halt annual cost-of-living pension plan for retirees until pension funding reaches 70%; and hinge future cost-of-living-adjustment increases on pension investment gains.

The proposals are expected to face vigorous opposition from public employee groups.

A court decision last month favorable to state employees could complicate the matter. Superior Court Judge Sarah Taft-Carter ruled Sept. 14 that the retirement system is essentially “an implied contract” between the state and its employees.

She allowed eight public employee unions to proceed with a lawsuit seeking to block pension reductions.

According to a report by the Pew Center on the States, a Washington think tank, Rhode Island’s public sector pensions were 59% funded in fiscal 2009, well below the 80% threshold it considers for a well-funded pension system.

Both Chafee and Raimondo said the special session was necessary to dedicate time to the pension problem. “Any pension solution must be comprehensive and solve this problem once and for all,” Chafee said in a letter to state employees two weeks ago. “It isn’t fair to employees to adjust the pension system year after year.”

Central Falls is the face of Rhode Island’s pension woes. The city north of Providence, with a population of 18,000 and taking up just one square mile, filed for Chapter 9 bankruptcy protection on Aug. 1, prompting a series of downgrades to municipalities, counties, and conduit issuers by the major rating agencies. Pension obligations were cited in most cases.

Fitch Ratings and Standard & Poor’s each rate Rhode Island’s general obligation bonds AA, while Moody’s Investors Service rates them an equivalent Aa2.

Chafee said proposed legislation would not reduce any benefits accrued by both active employees and retirees, but added: “Fixing the pension system will require shared sacrifice, from employees, retirees, and taxpayers.”

Rhode Island’s unfunded liability rose to $6.9 billion from $4.7 billion in 2010 from 2009, up 47%, according to the Pew report.

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