A promise is a promise…unless it’s inconvenient

Story Repair | ByMike Alberti | Labor, Pensions, State government

Dec. 18, 2012 — In 2008, when George Glover decided to retire from his job as a program coordinator for the Rhode Island Department of Labor and Training after 33 years, he did so with the expectation of receiving a 3 percent cost-of-living increase in his state pension every year. A statistician by training, Glover had planned methodically for his retirement, making spreadsheets, doing the math. Between Social Security, his state pension, and the adjustments for the cost of living, he figured he would be able to pay all his bills and have a little left over.

What is story repair?

In this feature, we select a story that appeared in one or more major news outlets and try to show how a different set of inquiries or observations could have produced a more illuminating article.

For repair this week: “Rhode Island Judge Has Stake in Pension Case Outcome” (The New York Times, Dec. 5).

In the article, a Times reporter who reliably insists that state and municipal pension benefits are unaffordable took aim again, serving as a conduit for the arguments of a well-known lawyer and trumpeting a potential ethics violation on the part of the Rhode Island Associate Justice.

Several paragraphs are spent on the alleged ethics violation without making it clear that Rhode Island’s standing Ethics Advisory Panel, an independent body created by the state’s Supreme Court had, in fact, already ruled in October that the interests supposedly giving rise to the alleged conflict were “objectively de minimus,” and that, if the judge subjectively believed that her ability to be fair and impartial will not be affected, she may “indeed have a duty not to recuse” herself (emphasis added).

The other primary frame of the story is the supposedly selfless devotion of David Boies to represent the Employees’ Retirement System in its attempt to defend Rhode Island’s breaking of its promises to its workers — devotion portrayed as genuine concern about the consequences of overgenerous pensions.

We thought that what the reporter characterized — in the 20th paragraph of the story — as the “fundamental question in the lawsuits” deserved more than the passing treatment it got.

That question?  Whether Rhode Island “can renege on promises to public workers.”

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“I’m what you might call meticulous,” he said. “I never make a decision without running the numbers first.”

Then, in 2011, the Rhode Island legislature, claiming that the state’s retirement system had become unsustainable, passed a sweeping law — euphemistically dubbed the Rhode Island Retirement Security Act — that made drastic modifications to the pension scheme.

Among other changes, the legislation raised the minimum retirement age, changed from a defined benefit plan to a mixture of a defined benefit plan and a defined contribution plan, and switched from giving retirees a 3 percent annual cost-of-living adjustment (COLA) to giving them one every five years at a rate that will depend on the fund’s investment returns. The revised system will remain in effect until the pension fund reaches an 80 percent funding ratio (as of 2011, the funding ratio of the Rhode Island State Employee Retirement System was only 57.4 percent).

For Glover, that means that he will not be receiving the COLA that he was counting on this January, and that he has no way of knowing how much the next one will be. If the subsequent COLAs are lower than the increase in the overall cost of living, his pension will be worth less and less every year. Though he still expects to be able to pay all of his monthly bills next year, Glover said that he will not be able to save any money for the bills that come due annually, such as his car insurance and his taxes. To make up for the difference, he said, he is considering finding a part-time job.

“I had my plan in place,” he said. “I did everything that I was told to do and made my plans based on everything I had been told. Then the state changed its mind and decided to pull out. I just don’t think that’s fair.”

After the legislation passed, Glover, along with hundreds of other retired state workers and current employees, filed lawsuits alleging that the bill was a violation of their contracts with the state. The Rhode Island constitution, like the federal Constitution, prohibits the state from passing any law “impairing obligation of contracts.”

The argument put forward by the Rhode Island officials who are named in the lawsuit — including Governor Lincoln D. Chafee and State Treasurer Gina Raimondo — is that the promises the state has made to its workers about their pensions do not constitute contracts, and are thus not legally enforceable.

The stakes in the case are very high. According to legal experts, if the courts uphold the state’s argument, it would represent a drastic and fundamental shift in the way that state pensions have been treated under the law for decades, with implications that could be large and lasting, not just in Rhode Island, but across the country.

“The entire public pension system is built on the understanding that pensions are legally protected promises,” said Richard Kaplan, a professor at the University of Illinois College of Law. “That idea has been foundational for at least the last half-century.”

That was certainly the understanding that Glover had when he took his job with the state in 1975, so he was surprised when he heard that the state was arguing that employees and retirees had no contractual rights to their pensions.

“The state made a promise to me,” he said, “and now it’s reneging on that promise. That isn’t how it’s supposed to work. When I grew up, a promise was a promise was a promise.”

 

Promises or “gratuities”?

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Rhode Island public employees protest pension cuts in front of the statehouse in November, 2011. Photo Credit: Susan Petersen, AFSCME Council 94

In the years since the recession, Rhode Island has hardly been alone in cutting pension benefits to state employees. In fact, according to the National Conference of State Legislatures, 43 states enacted major changes in their retirement plans for public employees between 2009 and 2011. Among the types of changes made were increases in employee contributions, changes in the formula used to calculate benefits, increases in the retirement age, and COLA reductions.

Those cuts have led to a flurry of lawsuits in dozens of states. Several of those lawsuits, like the ones in Rhode Island, are alleging contract violations. In most cases, the state is arguing that all or part of the benefits it promised to retirees are not subject to contractual protections.

Norman Stein is a professor of law at Drexel University, an expert on pension law, and an advisor to the Pension Rights Center, an organization that advocates for retirement security. According to Stein, the attempt by states to frame their pension obligations as non-contractual represents a new push against the established understanding of what pensions are.

“It’s an argument we really hadn’t seen much of before 2008,” he said.

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