Brian Kennedy

I had applied for a seat on the Pension Working Advisory Group, hoping to provide expertise and balance to the specialty areas which might repeat and justify the myopic 2011 processes which produced "unintended consequences." I was unsuccessful. The following comments, queries and suggestions represent what I would have emphasized as a member of the group.



Brief Bio: Retired State Employee, M.P.A., B.A. (English), RI Governor's Budget Office (professional experience), RI Office of Human Resources (management experience), AFSCME Shop Steward, AFSCME Retiree Group, U.S. Marine Corps 1969 - 1971.



(1) WHAT SHOULD BE YOUR FOCUS



(a) Retiree benefit value has decreased by 35% since the advent of RIRSA in 2012, and will diminish by 40% by the end of the next General Assembly session (60% by 2031). This is the (allegedly) "unintended consequence" which was not mentioned in Mr. Newton's presentation, and which engendered the creation of the advisory group in the first place. Please address this issue. Or at least have the courage to acknowledge that this "unintended consequence" is now an intended consequence.



(b) R.I. State Budgets have increased by 85% since RIRSA, from $7.7B to $14.1B. Obviously, inflation protected revenues (e.g. sales and income tax) have increased by an equivalent rate to support such funding. Mr. Newton's analysis ignored General Fund revenue trends and the state's ability to finance their guaranteed defined benefit plan. No chart had a revenue line from the General Fund to overlay on the line showing required contributions. It was offered as axiomatic that ERSRI could not be properly funded (aided by cumulative, unrealistic "worst case" totals). The "expertise" was limited to the Trust Fund.



(c) Where is the $3B?? This bogus amount (spread over 12 years, by the way), deliberately inflated to reflect a scenario where everyone retired at once, was presented as "savings." So, where is it? The answer is, obviously, to the government programs, private contractors (including actuaries), and non-profits that publicly lobbied for the elimination of the COLA, as well as other cutbacks. The money was diverted, not saved. The funding was, is and will be available for adequate funding for the pension plan, including the 3% COLA, whose members have unwillingly (some unwittingly) subsidized these entities for the last twelve years. 



(d) These are the numbers which should be your concern. In its simplest terms, ERSRI members wonder why their benefits are cut by 40% by an employer who's spending has risen by 85% - yet that employer claims a lack of funds. That employer has also twice offered $50,000 early retirement incentives to induce employees into the supposedly struggling retirement plan.

A well-managed Trust Fund should be the mechanism to pay the guaranteed defined benefits, and not manipulated by its specialists to create obstacles to meeting payment obligations.



(2) BRACKETS FOR GENERAL ASSEMBLY ACTION - THE BOOKEND OPTIONS



(a) "Stay the Course"

* Financial Impact - None. There will be no savings. Dollars not provided to ERSRI members will continue to be distributed to the government agencies, private contractors and non-profits who have benefited from RIRSA for the last twelve years. The "savings" are merely diverted to competing programs, programs which are not actually owed the money (unlike those in a "defined benefit fund"). I might add that these competing programs rarely contribute to their programs, which is the case with ERSRI members.

* Human Impact - Considerable. The standard of living continues to deteriorate for retirees, triggered by a 35% decrease in the value of their benefits (60% by 2031).

* Death Rate - I cannot get these numbers, but the Advisory Group can, and should, have this chart developed:

# of pre 2012 retirees _______

# of pre 2012 retirees alive now _______

# of pre 2012 retirees alive in 2031 (projected) _______

This consequence, hidden in the labyrinth of actuarial assumptions, will show the sinister nature of formulating a 20 year plan to "fix" the problems of program clients with a 20 year life expectancy. And we have been told by the author of the plan, in the words of the prison warden in "Cool Hand Luke," "It's for your own good, Luke".



(b) Restoration of 3% COLA, other benefits



* Actuarial analysis needed, but to be used cautiously and in context. EVERY government program would look unaffordable if the total cost over decades were utilized for decision-making. (e.g. two new favorite vote-getters, subsidized day care and free school lunches, will cost over $0.5B in the next ten years).

* Cost must be evaluated within the context of all revenue expectations, and not just the investment portfolio. As previously mentioned, state spending has climbed by 85% since RIRSA. Allowing ERSRI to renege on obligated benefits in light of the total revenue of the state is criminal.

* Because the tax bases rise with inflation (e.g. sales and income), revenue will climb without increasing the tax rates.

* The new marijuana tax is producing considerable revenue.

* Government budgets are typically developed on a "current service level" model. This allows agencies to calculate the necessary funding for continuing to provide last year's services. This approach compensates for inflation. Reducing this calculation by 1% and allotting it to the Pension Fund would still provide an increase for government programs as well as a funding option for ERSRI.



(c) The above two options (do nothing, or reverse RIRSA) identify the boundaries of the Advisory Group's choices. Developing and analyzing them would set the context for where the group should go.



(3) KICKING THE CAN DOWN THE ROAD WITH A FRESH SET OF EYES



(a) Buying time (an option, as the General Assembly requested).



(b) Restore the 3% COLA for the next Fiscal Year. Using data from ERSRI's annual report, $1B in benefits were paid in 2022. 3% of $1B is $30M.



(c) Authorize a 3% increase ($30M) for the next Fiscal Year. The money is in the Trust Fund right now.



(d) There is no need to continue "kicking the can down the road" by doing nothing. Money is available right now to finance a one-time 3% COLA as a stop gap measure. And the following Section (4), MISINFORMATION/DECEPTION RE: 2031 "FULL COLA RESTORATION" will show the pointlessness of protecting the Trust Fund to reach 80% funding in 2031.



(e) If the General Assembly wants to continue avoiding action because of the complicated nature of pension finances (and other considerations), it can return to the comfortable realm of annual budgeting, and provide a 3% COLA while trying to figure out what to do.



(4) MISINFORMATION/DECEPTION RE: 2031 FULL COLA RESTORATION



(a) Eliminating the 2031 COLA restoration plan should be seriously considered by the General Assembly as an option. At minimum, GA members should be told in unambiguous terms that:

* Many (most?) of the pre 2012 retirees will be dead by 2031.

* The pre 2012 COLA will NOT be restored, even after 20 years of pain (and/or death).

* This COLA replacement is merely a continuation of the COLA formula which will have produced a 60% decrease in benefit value by 2031. The only difference is an acceleration of the payment schedule. But a bread crumb is still a bread crumb, whether distributed daily, monthly, or annually.

* The formula is deliberately complicated to camouflage the fact that it adds up to a pittance.



(5) MISUSE OF THE TRUST FUND



(a) Underfunding

* The General Assembly must know that any problems (if they do indeed exist) is a result of underfunding by the General Assembly. Hence, the insistence by then Treasurer Raimondo that the focus should be to "fix" the alleged problem, not cast blame. Of course, the "fix" was exclusively at the expense of ERSRI members.

* Regardless, we should all agree that the rationale for the Trust Fund is to assure the payment of guaranteed defined benefits, and avoid the vagaries and uncertainties of annual budgeting. Ironically, the Trust Fund had provided the vagaries, and the certainties exist in the inflation-protected revenue streams and related expenditures (85% growth since 2012) of the annual State of RI Budgets.

* Although the Trust Fund was put in place to guarantee the ERSRI members' retirement packages, the "fix" was to guarantee the Trust Fund by gutting those very benefits.



(6) SUMMARY - Can't see the forest for the trees



The above discussion is intended to conform with the intent of the enabling legislation for the "Pension Advisory Working Group." As I was not seriously considered for a position on the group (no retirees need apply), I've sought to make a contribution via this format.



The General Assembly is looking for a review of the "unintended consequences" of RIRSA, as well as "options" for action which will provide an escape hatch from the labyrinth created by these "unintended consequences." This process desperately needs a "fresh set of eyes" for the current state of affairs to be fairly evaluated.



There is considerable skepticism regarding the myriad statistical presentations by a very narrow group of specialists, who regard as axiomatic the cutting of benefits as the only path to retirement stability for ERSRI members. We fear that the same specialists from the same specialty areas will look at the same data with the same perspective, and arrive at the same conclusions (judging oneself provides predictable and favorable results). "Big Picture" vision must be dovetailed with the introspective charts and columns.



We see the RI State Budget increase by 85%, and then are told that our so-called Trust Fund cannot be sustained. We are told of the unstable condition of the Retirement System, and then see two $50,000 incentive programs to encourage early retirements into this supposedly troubled plan.  We see our benefit value decrease by 35% while State Employee salaries are increased by an equivalent amount by our previous employer. We see our friends, families and former colleagues die while their retirement security is perpetually debated. We have given up on recouping the benefits which have already been pilfered, which represents a considerable donation to government coffers.



These comments are only the tip of the iceberg regarding what has happened in the past (Politics, anyone?), and what must be done to reverse course.



We hope that the members of the Pension Advisory Working Group expand their respective perspectives, and develop innovative solutions with the new, fresh eyes that the enabling legislation calls for in acknowledging "unintended consequences."

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