Falling into the Pension “Contract” Trap


One concern with the pension reform “settlement” that hasn’t gotten as much attention as it deserves is the effect it will have on the General Assembly’s ability to revisit the reform (the shelf life of which, I’m putting at about five more years).  Testimony, published on the RI Taxpayers site, from William J. Murphy, before the RI Senate Finance Committee, raises that concern in a bigger way than vague apprehensions would suggest:

Approval of the pension settlement currently under consideration by this committee would produce the disastrous unintended consequence of transforming state pension benefits from their currently advantageous legal status as legislative policies subject to revision by the General Assembly as it judges necessary to best serve the public interest into binding contractual obligations which cannot be changed lawfully by the legislature, even for this vital purpose,  through the exercise of its ordinary legislative powers.

Granting passage to the pension settlement legislation negotiated during the union pension lawsuit mediation process would produce this devastating result by introducing the element of “agreement of the parties” into the “circumstances of its adoption,” thereby satisfying the first and most important test of contract existence the courts apply when deciding whether government pension laws create contract rights.

  • D. S. Crockett

    The pension settlement is unraveling as we speak. If accurate, RI’s pension system will become Illinoian or codified in law as the governor of that state is finding out. The general assembly leadership urged on by their own self-interests will be compliant. They will have the cover to tell the voters the next election they can do nothing about it. Those that argued to let the suit go to court knew what they were doing so too did those who recommended negotiation. Unfortunately, the latter won. My friends, it looks like the game is over for the RI taxpayer in perpetuity. Any pretext of Hope is now lost.

  • Tommy Cranston

    Maybe taxpayers can claim an “implied contract” on the car tax “phaseout” or the reduction in the sales tax from DEPCO, or the “cap” on property taxes or the “temporary” income tax?
    We deserve everything we get for keeping Democrats in power. I’ll bet someone a hotdog at opening night of Skeffington Stadium that the moron majority will keep voting Democrat even if/when they raise the sales tax to 10%.

    Any takers?

  • Joe Dullivan

    Taft-Carter has already ruled that pension benefits are an implied contract. The Rhode Island Supreme Court would not rule on that issue and sent it back to superior court.
    So when does the contract start? According to contract law, the minute you one starts performance, that is the first day a person works. So when “retiree A” started working the contract said that he paid 6% of his salary. It then went up to 9.5% by the time he retired. Now of course the GA can always change the contract retrospectively if the GA offers something of equal or greater value, for example a COLA. That now becomes the “new” contract.
    The GA are not limited at all. They are not limited to pension benefits for new employees. They can even offer no pension at all. I really don’t get why people kept insisting that the pension benefits are legislative policies when the court has ruled that they are not.

    As far as the state’s argument for serving a greater public interest in “saving” the retirement fund, there is some confusion. The retirement fund is the co-mingled private property of 60,000 people. I see no public interest here except that the state wants to spend money somewhere else.
    The bottom line here is that the pension settlement is just as unconstitutional as the pension reform itself. Now of course, the state can always take your property if you agree to it. It seems that there were thousands that did agree to do just that. But wait they will have to be compensated for their property.

    You would think that someone would just ask for a declaratory judgement and get this whole mess over with. Oh wait, they will have to cover themselves politically so the chances of that happening are slim. Really now, you would think think that the state would be smart enough to just give the people what they had before 2009. Instead, this whole thing just might backfire and they get what they had on the date they were hired. I know that I contributed more to the pension fund than what my “first contract” stated and I am not seeing an equal or greater benefit.
    By the way, that issue is not even part of the pension settlement. I believe that is still opened to be challenged.

    • guest

      As far as the state’s argument for serving a greater public interest in “saving” the retirement fund, there is some confusion. The retirement fund is the co-mingled private property of 60,000 people. I see no public interest here except that the state wants to spend money somewhere else.

      Those 60K peeps have contributed precious little to the retirement system … just $1.5 billion while expected payouts are ~ $20.4 billion

      [[ See =► http://riopengov.org/state-pensions/ ]]

      So since the non-gov’t-employee taxpayers are putting up 93% of the pension bucks (( 1.5 / 20.4 = 0.0735 )) ,, I see a HUGE “Public Interest” here

      • guest

        You have banned me here TWICE ,, Justin
        … apparently just for disagreeing with you

        … so I guess you will have to figure out some way of banning ‘Guest’ posts now ☺

      • Joe Dullivan

        All Rhode Island taxpayers are paying the bill, including me. Please also note many, such as myself, don’t pay into Social Security. That is a 6.2% saving on every dollar that I earn. I have worked 30 years and I am still working.
        The point that I was trying to make is that the retirement fund is private property. Paying taxes is a public interest. I will agree with that, but we are talking 2 different things.

        • guest

          The self-employed pay 12.4% in FICA ‘contributions’. Well, actually the employed do too cuz that 6.2% employer share is money that would have been available to boost their pay. And on top of all that we poor civilian suckers have to provide 97% of *your* pension too ?!?!?!!

          But you consider the retirement fund to be your own personal “private property” … man you have cojones of solid steel !!

          • guest

            And BTW, Joe:

            If you pay the maximum FICA contribution for 35 yrs — which is currently ~ $7,500 a yr (( on top of The Medicare tax rate of 1.45% on the first $200,000 and 2.35% above $200,000 )) then you are entitled to the maximum SSA benefit =► 2500 bucks a month *minus* the $110 / mo Medicare Part A premium they will automatically deduct

            That is *less* than $30K a year. Now go back to that Link I posted supra and you will see dozens & dozens of former State employees receiving six-figure pensions that WE civilians are basically paying for

            But you don’t see any “public interest” in all this ???

    • Tommy Cranston

      You are spewing complete nonsense. In the HIGHLY unlikely event the Supreme Court were to decide that legislation somehow binds future legislatures in perpetuity the state could just force (“ask” in progressivese) current employees to pay 25 or 30 percent of their wages to cover the unfunded liability and there’s not a damn thing the union could do about it.