Case study: Rhode Island Pension Reform or Dallas Police and Fire Pension Reform

Running Head: RHODE ISLAND POLICE REFORMS 1
Police Reforms: A Case Study of Rhode Island
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Institution
Introduction
The General Assembly of Rhode Island passed a reform on the pension bill in 2011, which suspended adjustments in the cost of living for individuals who have retired an increment in the age of retirement and introduction of a funding system that is hybrid defined. Historically, Rhode Island pension system has been facing underfunding. In 1993, the total present value of employees of the state pension fund was represented by 72% of the total expected state liabilities. More so, the funds of the teachers faced a worse condition as compared to that of the state employees. Although the levels of funding somehow improved in the 1990s, they later faced rapid deterioration after 2000. The General Assembly made mode attempts to improve that situation using activities such as, increasing the minimum age retirement of the state employees. The measure failed to address the issue although it slowed down the rapid decline in stability of the Rhode Island pension fund (Company, 2012).
The treasure of the state appointed an actuarial assessment which was independent from the system since the situation was a threat the finances of the state. From the assessment, it became clear that there existed a pension liability that was unfunded amounting to 6.8 billion dollars. This implied a 50% less system funding relating to the obligations of the pension system. Later, with the collaboration of the governor, treasurer and state legislature leaders, they highlighted the problem and made a reform for the case. They also included various committees in the state and major stakeholders before concluding to the proposed reforms. What remains it an indication that the reforms will be able to meet the savings that were projected under the RIRSA planning. Rhode Island seem to make visible steps in the pension reform so long as the coming leaders do not use the past practices and this a good example that should be emulated by other states (Company, 2012).
History of Rhode Island’s Pension system
In 1936, the Rhode Island introduced a system for employees of the state in order to provide death, disability, and survivor and retirement benefits. Later, the state made an addition to the teachers’ pension plan which was managed with the collaboration of the employees of the state. After four decades, the state introduced two other pension funds that covered the police and the judicial system. Additionally, the state owns a relatively smaller benefit fund for teachers, managed separately from the main retirement system for teachers. Moreover, the state is also the manager of a pension system for municipal employees. Rhode Island has a population of averagely one million with around 150,000 individuals aged over 65 years. It is important to note that most citizens are not state workers and they don’t opt to work for the state. Therefore, it is an indication of lack of attention by citizens towards pension challenges and lack of effort towards their reforms.
The history of mismanagement of pension funds in Rhode Island led to the election a new state treasurer, known as Gina Raimondo in 2010. Raimondo brought up an argument about the states’ promises on pension benefits while it depended on high unreasonable assumptions on the return rate of assets, creating an illusion that the unfunded liabilities were lower than those in the reality. Evidently, the pension funds of the state faced a sharp decline in terms of asset value during the financial crisis in 2008: a fall from approximately 8.5 billion dollars to 5.5 billion dollars between 2008 and 2009. Furthermore, the state had a constant growth in population between years 2000 and 2010, leading to hardship to the state in the funding its pension properly. Additionally, the economy was also growing, hence the factors that were driving economic growth such as a lower asset to liabilities ratio faced underfunding systematically (Reagen, 2012).
Effects of The Political Environment on Rhode’s Pension System
All the major activities that were pushing for pension reforms faced political alignment in 2011 which led to creation of an environment that is cooperative for the reforms. During that time, politicians who got involved in the pension reforms lost much politically in case the reform process failed due to the existence of union groups which had close ties. The governor at that time was Independent and a former Republican endorsed by unions in the public sector over his opponent who was a Democrat. The governor hence enjoyed healthy relationships with the whole government. The treasurer was a Democrat as well as the Speaker of the House and the Senate President. Democrats had taken positions in the elected offices of the state and had total control the houses of the General Assembly. However, many of the policymakers had a conviction that immediate reforms were necessary in the address of the increasing unfunded liabilities within the pension system of the state. Furthermore, the treasurer had majored towards the pension reform during her campaign and received 60% of the total votes during her State Treasurer race (Press release, 2011).
The treasurers’ victory was not an indication of a smooth road for the pension reform. The release of a report by Treasurer’s office that was known as ‘Truth in Numbers’ led to unions made up public employees marshaling support based on a counter narrative. They stated that there existed no pension crisis since there was recent change in the assumptions made on the return on assets from 8.25% to 7.5%. According to them, this change was a consequent of 6.8 billion dollars liability that was unfunded under the reform. Raimondo countered this notion by stating that her report did not manufacture the crisis and explained that her motive was to deal with the pension system that was unsustainable based on truth and doing what was right. Additionally, Rhode Island was forced to consider state bondholders demands that were concerned on insolvency that was related to the woes of the pension system. In 2011, a law was passed by the general assembly that gave bondholders rights to revenue on tax tying the hands of Assembly and those of the municipal governments towards addressing the debt burdens. (Press release, 2011)
The Actual Pension Reform: The Campaign/ Coalition Approach and the Open/disclosed Legislative Process
Treasurer Raimondo’s report condemned how the pension system of the state was being managed by arguing that the assumptions in the rate of return in the previous decade had been exaggerated and unrealistic. The treasurer approved a recommendation that slightly reduced the assets rate of return from 8.25% to 7.5% and also suggested that an appropriate rate was supposed to close to 4%. The report also used salary projections and est...