In what is shaping up to be a seminal case addressing whether states can change and reduce their unfunded pension liabilities, Rhode Island state officials asked the courts to dismiss challenges by state employee unions to planned reforms in the state’s pension system. With an estimated $1.4 trillion of unfunded state pension liability across the country, Rhode Island is one of the worst offenders — which is why they took drastic action to reduce their liability, including:
• suspending increases;
• raising retirement age; and
• merging pensions into 401(k)-like plans.
According to an article published in the New York Times, “Without the changes, state leaders warned that pension costs would have consumed more and more public dollars, reducing funds for education and other programs and ultimately hurting the very workers served by the pension system. Before the law was passed, Rhode Island’s pension costs were set to rise from $319 million in 2011 to $765 million in 2015 and $1.3 billion in 2028.”
The state has brought in legal heavyweight David Boies, who represented Al Gore before the U.S. Supreme Court after his failed 2000 election attempt and participated in the government’s antitrust case against Microsoft.
Without relief, states will have to increase taxes or the federal government will have to set up the equivalent of the PBGC, which would have the same effect. Meanwhile, expect more workers and dollars flowing into 401(k)-like plans that need advisory services.
