PROVIDENCE — State pensioners take note: "The probabilities continue to increase that [annual] COLAs are restored'' on or before the June 30, 2031 target date set nearly a decade ago.
That was the message the state's pension consultants at Gabriel Roeder Smith & Co. delivered this past week to the state Retirement Board, headed by term-limited State Treasurer Seth Magaziner, who is himself headed to a new job in the new year as Rhode Island's 2nd District Congressman.
For tens of thousands of past and present state employees and public school teachers, the news is undoubtedly welcome if it, in fact, bears out.
Under the terms of the cost-cutting pension overhaul championed by then-Treasurer Gov. Gina Raimondo more than a decade ago, these two groups of pensioners get cost-of-living adjustments (COLAs) every four years, instead of annually as was previously the case.
At the height of the State House politicians' largesse, retirees were guaranteed 3% compounded annual COLAs that substantially increased their retirement income over time, as well as the taxpayer cost.
Pensions still take a huge bite out of state and local budgets, with Gabriel Roeder Smith anticipating the "employer" cost for state worker and teacher pensions will hit $541 million in the year that begins on July 1, 2024.
The "pension reform legislation that was passed in 2011... states that the annual COLA will return when the fund reaches an 80% funding level. At that time, the actuary predicted that would occur for state employees in 2031," according to the treasurer's office.
Mid-campaign, a Magaziner spokesman told The Journal: "The actuary is [currently] projecting this will occur in 2030 – one year ahead of schedule – due to the strong investment performance of the fund."
The latest GRS report does not actually say that, though it rates the chances at 52.4%.
But in raising the possibility that annual COLAs may resume before the 2031 target date. The state's pension consultant cited 2021 investment gains for the state-managed pension fund, averaged out over a five-year "smoothing period."
Put in consultant-speak: "Pullback in financial markets ... followed a remarkable 2021 market value investment performance. The 2021 performance ... was used to stabilize the results considering the 2022 performance, net was still a small actuarial gain on investment performance."
Much of the report is a look back at the size of the "unfunded liability" for the pensions promised to current and future retirees, and the amount state and local taxpayers will have to kick in to fund those retirement promises.
Among the data points:
∎ The "unfunded liability" − which reflects the amount on hand to meet future pension obligations − has decreased from $5.01 billion to $4.77 billion.
∎ The funded status is still years away from the 80% required to reinstate annual COLAs, but it has inched up to 58.8% for state employees, and 61.5% for teachers.
∎ Even with "pension reform," state and local taxpayers are still required to plunk more than 25% of payroll into the pension fund annually, at a projected cost to state taxpayers in FY25 of $238 million for state employee pensions and a $302.6 million cost to state and local taxpayers for teachers' pensions.
Among the consultants' observations: "The contribution rates should slowly decline year over year, but will be based on how active headcount and payroll grows."
The treasurer's office did not respond to a request for a copy of the actuary's full report.
But in 2021 there were 11,373 retired state employees (or beneficiaries) and 10,442 retired teachers (or their beneficiaries) receiving pensions, and 10,883 current-day state employees and 13,372 current-day teachers enrolled in the state-run retirement system.
In contrast to the state-run retirement system, 92 municipal pension plans have already reached − and in many cases exceeded − the 80% funding threshold that has allowed annual COLAs, calculated for 2023 at 3.11% on the first $28,878 in retirement benefits.
This article originally appeared on The Providence Journal: COLAs could come earlier than expected for state pensions. Here's how.
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