Rhode Island Pension Move May Inspire Other States, Fitch Says

Rhode Island’s retirement changes, which plan to cut its unfunded pension liability by 41 percent, may spur other states to take similar actions, Fitch Ratings said in a report today.

Governor Lincoln Chafee, an independent, is expected to sign the “expansive” pension changes into law within the week, following the Legislature’s approval yesterday, Fitch said. The law would reduce the state’s unfunded pension obligation by $3 billion, leaving it at $4.3 billion, in part by altering retirement benefits for current, future and retired public employees, according to Fitch.

“The sweeping nature of the reform may inspire similar efforts in other states grappling with large unfunded pension obligations,” Marcy Block, a Fitch analyst, wrote in the report.

Changes will take effect in the fiscal year starting July 1 and aim to fully fund the state’s pension systems by 2035, according to Fitch. The plan involves changing to “a hybrid defined benefit/defined contribution plan,” Fitch said.

Rhode Island, with a population of about 1.05 million, currently has only half the assets needed to cover retirement costs over the coming decades.

The state is one of 33 with public pensions that hold less than 80 percent of the assets needed to pay promised benefits over the next few decades, according to an annual study by Bloomberg Rankings. The 80 percent level is a common threshold of sustainability used by actuaries. In states such as New Jersey and Florida, lawmakers this year have forced workers to pay more into retirement funds.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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