Rhode Island officials and a federal mediation agency late Friday outlined a proposal to settle lawsuits by public-sector unions challenging Rhode Island's landmark 2011 law that overhauled the pension-benefit system for state employees.
The Federal Mediation and Conciliation Board, along with Gov. Lincoln Chafee and General Treasurer Gina Raimondo, announced the terms during a press conference at the state Department of Administration building in downtown Providence.
"Today's a good day and the start of a long process," said Chafee. Union leaders and pensioners must consider it before the General Assembly considers it around May. Lawmakers had not been part of the mediation talks.
Changes include a tweaking of the formula for cost-of-living adjustments, or COLAs. The new law based COLAs solely on investment returns. Under the proposed compromise, they would be based half on investment returns and half on the consumer price index. The COLA is still paid on first $25,000 base
There will be a one-time 2% COLA after passage of the legislation.
Employees with 20 or more years of service would shift back into a defined benefit plan with a 2% annual accrual with higher employee contribution rates. The contribution rate would be 11% for state employees and teachers and 8.25% for general employees under the Municipal Employees' Retirement System (9.25 percent with COLA).
For employees with 10 to 20 years of service, employer contributions to the defined contribution plan would increase from 1% to 1.25% for employees with 10 to 15 years of service and 1.5% for employees with 15 to 20 years.
Raimondo, who championed the pension law, said eliminating the lawsuits would save the state millions of dollars in legal fees and preserve 95% of the anticipated $4 billion in savings for the state and $1 billion for municipalities.
The law, when it passed, generated national headlines and praise from major bond-rating agencies. It would, however, add $232 million, or 5% to Rhode Island's pension-funding shortfall, bringing the total to about $5 billion.
Moody's Investors Service rates Rhode Island's general obligation bonds Aa2, while Fitch Ratings and Standard & Poor's rate them AA.
Raimondo said it keeps the design components in place, such as the hybrid pension and 401(k) plan and suspension of cost-of-living adjustments until the pension system is adequately funded.
"This has been hard. It's such an emotional issue," said Raimondo.
Earlier in the day, the State Retirement Board, which Raimondo chairs, approved the settlement. The vote was 6-1, with five abstentions. Dan Beardsley, executive director of the Rhode Island League of Cities and Towns, was the lone dissenter.
Lawyers for both sides met in the morning with state Superior Court Judge Sarah Taft-Carter, who is overseeing the case. After the unions sued in 2012, Taft-Carter ordered mediation talks and imposed a gag order.
The announcement came on the cusp of a three-day holiday weekend, with state lawmakers away on break.
Legislative approval could be dicey. Many who took political risk in approving the 2011 law, formally called the Rhode Island Retirement Security Act, might be reluctant to endure another contentious battle.
"That's the absolute truth. A lot of them stuck their necks out," said Bill Brandt, the president and chief executive of Development Specialists Inc. of Chicago and chairman of the Illinois Finance Authority.
Should they reject the proposal, the lawsuit would continue. Taft-Carter earlier this week set a tentative Sept. 15 trial date.
The Providence-based libertarian organization Stephen Hopkins Center for Civil Rights criticized the mediation process. "This mediation threatens the separation of powers without promising final settlement of any sort," its president and general counsel, Matthew Fabisch, said in a statement late Friday. "Mediation was not an appropriate way."
