Rhode Island pension reform is not a success story

Last night, Rhode Island’s legislature passed a sweeping reform of its public-sector retirement system.
It cuts retiree benefits, mostly by suspending cost of living
adjustments, and institutes a cheaper hybrid plan with a 401(k)-like
private account component, and it should save taxpayers billions of
dollars in coming years.

Far-reaching as the bill is, however, this outcome is something of a
failure, good only by comparison to the tragedy that would have ensued
had lawmakers done nothing. Rhode Island waited until it was on the cusp
of disaster to make desperately needed changes. By comparison, Utah’s
reform, described in our recent series of case studies,
came about because lawmakers were thinking years into the future about
the risk pension shortfalls presented. They gathered support for changes
to the retirement system to head off a crisis before it became
inevitable.

The short-sightedness of the Ocean State shouldn’t be called
“courageous” simply because Rhode Island changed course at the last
possible moment to avert disaster. The state may provide a model for
other profligate jurisdictions like Illinois, showing them that change
is possible and following the old path over a cliff isn’t their only
option. But the country should look to more proactive reform-minded
states for an example of how best to structure teacher retirement
systems for the 21st century.

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