Rhode Island General Treasurer Gina Raimondo is building a political career on the strength of the pension reform she spearheaded in 2011, which she has touted as a model for other states to follow. But here’s something you probably don’t know about the new hybrid retirement plan for teachers and other government workers: it actually increases costs for taxpayers even as it cuts benefits for most workers.
The Rhode Island Retirement Security Act drastically cut traditional pension benefits and introduced a new 401(k)-style defined contribution plan. The latter, though presented as part of a cost-saving strategy, is actually less cost-effective than the pension it partly replaces, according to an Economic Policy Institute analysis by Robert Hiltonsmith.
It’s true that RIRSA did save taxpayers money, but not from switching to a hybrid system. Rather, the savings come from cutting accrued benefits workers were promised — suspending the cost-of-living adjustment and making it contingent on investment returns. RIRSA also appeared to cost less because Raimondo conveniently overcame her earlier objections to paying down the state’s unfunded liability over a longer period.