Treasurer Diossa responds to proposed pension changes in FY25 budget

Published on Saturday, June 01, 2024

In response to the Fiscal Year 2025 Budget released today, Treasurer James A. Diossa weighed in on proposed pension changes and their impact on the Employees’ Retirement System of Rhode Island (ERSRI), the Municipal Employees’ Retirement System (MERS), and the state’s ability to borrow. 

“As Treasurer, I am responsible for the long-term growth and sustainability of the pension fund. That means ensuring that any benefit enhancement is responsibly financed, not only to protect taxpayers, but also to ensure the system’s continued ability to pay pension benefits for current and future retirees,” Diossa stated. “At the direction of the General Assembly, I convened a Working Group to assess the impacts and consequences of the 2011 reform and provided the legislature with options to potentially improve the system in the wake of those reforms.”

The most significant pension-related changes contained in the FY25 budget include a provision which would eliminate the 80% target ratio for benefit restoration for members of the retirement system that retired before July 1, 2012, and a provision which would reduce the target funded ratio from 80% to 75% for reinstatement of statutory benefits. In effect, this would mean those who retired before the 2011 reforms became effective would begin receiving an annual COLA this January. 

According to the state’s actuary, the cumulative impact of the pension proposals contained in the budget “would increase the Unfunded Actuarial Accrued Liability (UAAL) by $417 million across all plans and decrease the funded ratio of the State Employees and Teacher plans by approximately 2%. The total increase in the contributions for Fiscal Year 2025 would be $38.7 million across all employers,” including state agencies and municipalities. This budget appears to allocate funding to cover the state’s portion of these changes. 

“In discussions with the state’s fiscal advisor and actuary, my office has been cautioned that increases in liability, combined with additional debt service, could potentially have an impact on the state’s bond rating in the future,” Diossa added. “I look forward to working with the legislature over the coming days to ensure that changes to the pension system protect taxpayers and the integrity of the fund.”