You know when the entire sky is covered with clouds except to the east, where the rising sun still makes the day feel clear? That’s the sensation I get from Patrick Anderson’s Providence Journal article about the state pension system’s funding status. The points that most folks in the public sphere will see are these, which are disconcerting, but ultimately manageable:
Under the valuation adopted by the Retirement Board Friday, the state’s contribution to the fund for state workers is expected to rise from $186.7 million in the fiscal year that ends next June, to $197.1 million the following year and $209.4 million in the year ending June 2020.
State contributions to teacher pensions are expected to rise from $249.6 million in the fiscal year ending in June, to $267.8 million the following year and $283.6 million in the year ending June 2020.
That’s $56.7 million more that the state government will have to find somewhere annually by 2020. Perhaps the more ominous news, however, is something that doesn’t catch reporters’ attention so much anymore, perhaps because it’s an abstraction in the policy weeds:
Reflecting the growing unfunded liability, the pension’s funded ratio for state workers slipped from 56 percent as of June 30, 2016 to 52.9 percent at the same point this year, according to the report from Gabriel Roeder Smith & Company. The funded ratio for teachers slipped from 58.3 percent last year to 54.8 percent this year.
Now would be a good time to revisit the details of the so-called Pension Protection Act. Under the terms of that law, a pension plan is in “endangered status” if its funded ratio drops under 50% or the ratio has been decreasing for five consecutive years.* At that point, the pension board will give the General Assembly an either/or choice: increase employer and employee contributions enough to get the plan back on track or implement some other plan that the board comes up with that might or might not include “revised benefit structures” or employer contribution increases or employee contribution increases.
Per Anderson’s reporting and the history, the funded ratios for state workers and teachers have dropped for three consecutive years. Moreover, prior to the discount rate change, the auditors were already projecting that the ratio would continue dropping through 2020 by an amount that may very well bring the ratio below 50% in a year or two with the new discount rate.
Those who believe that Rhode Island needs to begin resolving budget problems in a way that benefits taxpayers, not special interests, should begin their planning, now, because you’d better believe that the labor unions have plans to push for a tax-increase-only solution.
* It actually isn’t clear whether that’s an “or” or an “and,” but at this point in Rhode Island’s pension history, that distinction may not matter.