Connell: No defense for pension bill's inequities

Written Testimony by Kathleen Connell, Senior State Director, AARP Rhode Island on Legislation Relating to the Retirement Security Act-

House Bill 2011-H-6319 • Senate Bill 2011-S-1111

 

Before the Joint Hearing of the House and Senate Finance Committee

 

October 26, 2011

 

 

Chairmen Melo and Da Ponte and Members of the House and Senate Committee on Finance:

 

Let me first express my appreciation for the opportunity to testify, and especially to acknowledge the efforts that have been made by these bodies and the leadership to be as transparent and inclusive as the venues and time permits.

 

To date, however, the voices of the retirees have not been adequately heard during this intensive process of presentations and erudite discourse on the complex and poorly understood intricacies of the pension system and the plan to change it.

 

I am a retired state employee as noted in the Providence Journal, but I do not speak on my own behalf today, except to say that the Treasurer has stated on several occasions that if this bill passes exactly as you have it, politicians will never again make decisions about the system. As she said, her plan takes this “out of the hands of politicians.”

 

 Adjustments will be made solely by actuarial determination of the pension status and we will never need reform again. Translation: Your elected officials who answer to you, the public and the beneficiaries, will have no role going forward; determinations will be made by the computers and people on Wall Street. In short, only numbers matter, people and circumstances don’t.  Representative government is cast aside.

 

Many have asked why AARP is engaged in this discussion.  AARP Rhode Island’s advocacy on this bill fits into AARP’s broader, national campaign to Protect Seniors from fiscal instability caused by cuts in retirement income, Social Security and Medicare. AARP advocates for older Americans nationwide, asserting that we all have a right to be self-reliant and live with dignity in retirement.  AARP maintains that modifications to pension plans should have the key objective of holding harmless current beneficiaries and employees, as well as ensuring the retirement security needs of future employees.

 

AARP entered the pension reform conversation because we determined that current retirees, and current employees for that matter, were not aware they were targeted in this bill. The opinion that once a person retired their benefits could not be changed was widespread. Of course, this belief was based on the nearly universal recognition that retirees – who by definition have reached the end of their income-producing years -- no longer have many options. And because of that, it has always been understood that it would be wrong to change the rules at the end of the game.

 

We remain very concerned that the speed of the legislature’s review, the inaccessibility of the capitol and the timing of hearings, early in the business day, may preclude many from engaging in the discussion on this bill.  We have urged our members to contact their representatives and to make their voices heard at the capitol. 

 

 

 

 

For far too many years the state’s retirement systems were left at risk and liabilities grew to the levels we now experience today.

 

But the workers never missed a payment and they planned their retirement based on the explicit trust that their work and their contributions to their retirement savings would be honored, protected and fulfilled.  

 

Rhode Island’s retirees who served this state with honor and with pride and who made consistent payments throughout their careers, are not responsible for the underfunding that exists in the pension systems today.  These employees took their employers at their word, that by deferring income in the retirement system, they would have a secure retirement in their golden years.  The proposal before you would decimate the promises made to retirees. 

 

The magnitude of the numbers, understandably, has taken center stage. But the human costs of reform repeatedly are swept under the carpet. AARP – which historically has worked to protect the retirement security of older Americans – has been reminding legislators that this debate is not just about numbers—it’s about people too.

 

If this proposal is passed as introduced, many retirees risk losing close to 50% of the  buying power of their pension promise resulting from the loss of cost-of-living adjustments for 19 years, or more, as there is no guarantee when, or if, cost-of-living adjustments will return imbedded in the current version of the bill.  For many retirees, especially those who do not collect Social Security benefits, the cost-of-living adjustment is their only protection against inflation.

This is not a few individuals, as nearly half of all teachers and our public safety retirees did not participate in Social Security as part of their government service.  These retirees, with little to no other means to access inflation protection will be asked to shoulder a burden even greater.  When these individuals took their jobs and accepted the promise of a secure state retirement, they and their employers avoided the cost of Social Security coverage.  It was not a choice that individuals made.

Legislators, please imagine what it will mean to lose 30 or 50% of your retirement resources, your ability to make ends meet shrinking every year.  Imagine that for every dollar you were counting on in retirement to pay the mortgage, heat, groceries, or life-saving medicines, you receive barely 50 cents. Not just for a year or two, but up to 19 years, or more, since no specific date for return of the COLAs is laid out in the bill.

 

This legislation hands every Rhode Islander who chooses to work and live here a sobering and troublesome question: How do you plan for retirement if you cannot count on the benefits you were promised?

 

The focus of discussion today may be on a particular class of Rhode Island public employees, but people who work anywhere in the public sector or and private sector should share this concern. Retirees in great number do not have the opportunity to change their retirement strategy. They have spent their lives working hard, paying into the system and making tough, personal financial decisions so that they can have a retirement income they can count on. What is a retiree to do in order to make up for this significant loss of income?

 

The financial impacts of this proposal for retirees will be instant and, for many, they will be forever. There will be no recovery from the loss. In time, many of these retirees will fall into a new class of citizens the Assembly is being asked to create by statute. They will be known as those who saved and sacrificed to secure their retirements but suddenly had their futures altered – some even pushed below the poverty line – by a plan that the General Treasurer describes as one in which “everyone is asked to make sacrifices”. 

 

There is no defense of the inequity the bill as drafted seeks to codify: the burden of pension reform is being placed squarely on the backs of retirees. 

 

Pension reform, as presented to the General Assembly, will be detrimental to the financial security of seniors. AARP calls on the Assembly to ensure that Rhode Island honors its pension commitments now and in the future.

 

We urge you to study the bill carefully, to evaluate all options available, and to score the bill, not only on the basis of budgetary savings but also in terms of what these changes will mean to individual retirees, employees, their families and their communities.  We urge you to alter the bill. We ask you not to cut a deal that cuts retirees’ benefits. 

 

There must be a better solution; we urge you to find it.