(Reuters) – A new lawsuit challenging last year’s sweeping reform of Rhode Island’s public pensions will continue, even though labor unions were unable on Friday to stop the changes from taking effect on July 1.
Rhode Island superior court Judge Sarah Taft-Carter denied the request for a temporary restraining order, a spokesman said, just hours after unions launched three coordinated lawsuits on behalf of at least 30,000 state employees, retirees and emergency responders.
The unions claim that state officials violated employment contracts and did not first try less severe measures before passing the Rhode Island Retirement Security Act, according to Robert Walsh, executive director of the National Education Association’s Rhode Island chapter.
Most U.S. states have begun some kind of reform for their public pension systems in the face of massive unfunded liabilities and depressed post-recession revenue collections.
Rhode Island’s reform has been among the most far-reaching, with experts around the country watching how it progresses.
Rhode Island’s public pensions were among the worst funded – 49 percent – of all states in fiscal year 2010, according to a recent study by the Pew Center on the States. The state’s unfunded pension liability stood at about $7 billion in 2010.
The reforms, spearheaded by state treasurer Gina Raimondo, suspended cost-of-living adjustments, raised the retirement age, lowered the assumed rate of return on pension funds to 7.5 percent from 8.25 percent and moved state employees onto a hybrid pension benefit plan, among other changes.
Unions said they would sue, but the litigation has been a long time coming. The state legislature passed the law in November.
State officials could have tried “more reasonable alternatives” first, Walsh said, including tax hikes, raising the expected rate of return on the pension funds, and tweaks to mortality tables and the retirement age.
Raimondo said in a statement that the reform “represented the culmination of 11 months of thoughtful, fact-based analysis and input from retirees, employees and taxpayers.”
“It was carefully designed by the in an effort to save our state-administered retirement system,” she said, adding that her office “would work diligently to defend” the law.
Raimondo and Governor Lincoln Chafee, who supported the legislation, were among those named in the litigation.
The unions could challenge the judge’s order, but Walsh said they had not yet decided whether to appeal. A court hearing is scheduled for July 16 as the case moves ahead.
Rhode Island’s pension problem is bigger than just the state system, however.
It also has dozens of local pension plans that are administered separately by towns and cities. Many are in even worse shape than the state’s funds. Last year’s reform and Friday’s lawsuits don’t apply to the local funds.
The local pensions are funded at 40.3 percent with about a $2.1 billion collective unfunded liability at the end of fiscal year 2010, according to a state auditor general’s report.
Some Rhode Island cities — including the capital, Providence — have embarked on reform of their own.
Providence public employees and retirees still must decide whether to accept a compromise that would stave off lawsuits over the latest reform, as well as settle suits over an older change that moved retirees’ healthcare coverage to the federal Medicare program.