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Highlights from day 2 of the pension public hearings

October 27, 2011

Sharp rhetoric from leaders of police and fire unions flared during day 2 of the pension public hearings taking place at the Statehouse. Here are some of the highlights from the afternoon:

— The most fiery fusillade came from Paul Valletta Jr., the head of the Rhode Island Association of Firefighters, who said state Treasurer Gina Raimondo “cooked the books” to inflate the state’s pension problem. “Why she’s doing that, we’ll find out in three years,” Valletta added, in a not-so-subtle suggestion of political motivations. Due to the bad economy, it was a mistake, he says, to back state retirement board changes in April that increased the state’s unfunded pension liability. Of course, it can also be argued the state had a previously overly optimistic rate of return on its investments, and that the retirement board changes were overdue.

— UPDATE: Raimondo spokeswoman Joy Fox offered this response to RIPR, following Valletta’s remarks:

 “Upon the recommendations of actuaries and investment professionals, the Retirement Board adopted a new set of assumptions that are more in line with the reality of the system. Using unrealistic assumptions to mask the actual scope of the problem is in no one’s interest, especially public employees and retirees who deserve an honest set of assumptions and numbers.”

Fox said the actual rate of return for the past 10 years is 5.74 percent and 1.52 percent for the past five years. She adds that for the first quarter of fiscal year 2012, the investment rate of return is -3.39. The state’s current investment rate of return target is 7.5 percent.

— Senate Finance Chairman Daniel DaPonte played it close to the vest, as might be expected, in talking with reporters after day 2. He suggested committee witnesses with personal stories, as opposed to paid representatives of different special interests, made a greater impact. DaPonte said some of those personal stories can’t be ignored, at least from his perspective, but that the state’s room to maneuver is limited by an obvious lack of resources. DaPonte said Raimondo’s office is conducting “further technical analysis,” and he added, “We’ll wait to see how those conversations go.” 

— Woonsocket Mayor Leo Fontaine outlined the plight of his struggling community, describing how street lights and other basic programs have been reduced or cut. He’s a supporter of the pension overhaul backed by Raimondo and Governor Lincoln Chafee.

— Room 35 still lacks wifi, although state officials say they’re working on it.

The pension public hearing action resumes Tuesday at 11 am in Room 35, with a focus on locally managed pensions.

One Comment leave one →
  1. Mister Guy permalink
    October 28, 2011 12:29 am

    “Fox said the actual rate of return for the past 10 years is 5.74 percent and 1.52 percent for the past five years. She adds that for the first quarter of fiscal year 2012, the investment rate of return is -3.39.”

    Hmmmm, I’ve seen actuarial reports that state that the rate of return on the RI retirement fund over the last 10 years has been ~2.3% & ~2.5% over the last 5 years. I haven’t been able to figure out how those numbers were actually calculated, especially since the published rates of return over the last 10 years have ranged from -20.1% to 18.7%. It seems to me that the *real* rates of return over the last 5 & 10-year periods should be more like ~10.6% & ~3.1%.

    Another thing that I’ve noticed is that the historical published rates of return change from yearly report to yearly report when one looks back over time. If the actuaries can’t seem to decide how the retirement fund has done several years ago, why should they be trusted about the projected, future rates of return? The whole thing just doesn’t seem right to me, and I’m not sure at all who to trust when it comes to this issue.

    “The state’s current investment rate of return target is 7.5 percent”

    …which, again, seems like a more reasonable assumption given what many other states assume for their retirement system, but in 11 out of the last 16 years (or 69% of the time), the published rates of return for the RI state retirement fund have been at or well above 9.1%.

    “DaPonte said some of those personal stories can’t be ignored, at least from his perspective, but that the state’s room to maneuver is limited by an obvious lack of resources. DaPonte said Raimondo’s office is conducting ‘further technical analysis,’ and he added, ‘We’ll wait to see how those conversations go.'”

    Well, if her office’s track record is any indication, that “further technical analysis” will likely make the situation look even worse than the picture that they have already painted. As for having a “lack of resources”, the retirement system is currently solvent until at least 2019-2023, and the level of funding that the state will need to provide the system over the next 10 years isn’t dramatically high when taking into account the expected, projected increase in the state’s budget & revenue.

    I have a huge amount of respect for the work that they do, but it’s obvious that the current retirement benefits (both in the areas of pensions & health care) of police & fire officials are waaaaay too generous. The same goes for judges, which apparently haven’t even been paying into the system up until recently, and they make a HUGE amount of money compared to many, many other types of employees that are in the retirement system right now. The system needs to be evened out more in terms of the level of benefits that people get out of the system after they retire & when they are allowed to retire in the first place.

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