Dear Neighbors:
I hope you had an opportunity to enjoy one or more of the concerts presented around our neighborhood yesterday afternoon at PVD Porch Fest. In this week’s letter I discuss the pension relief contained in the House budget and the enacted bill reforming the Law Enforcement Officers Bill of Rights (LEOBOR).
A. Providing Relief to Retirees
1. The Pre-2011 Defined Benefit System
For many years, the State had a “defined benefit” system whereby retirees were guaranteed a pension based on a percentage of their employment income, with adjustments for changes in the cost of living. The system was funded by contributions the employee and State made during the employee’s active service, which when invested would produce a sufficient “nest egg” to pay the retirement pension.
The system came under stress when (1) life expectancies increased, thus enlarging the expected length of the employees’ pension-funded retirements and (2) the State and its employees did not adjust the amount of the employer and employee contributions to the pension to reflect increased future costs. For years, the parties agreed to “paper over” this shortfall by employing actuarial models with unrealistic assumptions about the expected growth of investment income and the expected cost of retirement.
2. The 2011 Reforms and Their Aftermath
In 2011, the Treasurer convened a working group that reviewed the pension system, applying more conservative assumptions to the actuarial model. The group concluded that the pension was drastically underfunded, and that reforms were needed to stabilize its finances. That year, the General Assembly enacted reforms that placed newer employees in a “hybrid” system that combined a smaller pension with a “defined contribution” savings account. The reforms also suspended cost of living adjustments (COLA’s) for retired employees until a future date (recently calculated as occurring in 2031) when the balance of the pension fund crossed the 80% threshold of being able to fund its expected obligations. The reforms were upheld in numerous lawsuits.
In the 13 years that have followed, inflation has reduced the purchasing power of these pensions by 28%.
3. This Year’s Reforms
This February, the Pension Advisory Working Group published a Report describing different measures to provide relief to the State’s 30,000 retirees, calculating the fiscal impact and actuarial impact of each. In a departure from the Governor’s budget, the House budget provides relief to retirees in these ways: (1) immediately resumes COLA’s for those who retired before 2011, (2) reduces the funding percentage to resume COLA’s from 80% to 75%, (3) increases the base level of pensions and (4) increases allowable the amount of income earned from post-retirement State employment.
The package of reforms will have an annual fiscal impact of approximately $30 million, and an actuarial impact on the retirement fund of approximately $400 million. While short of the retirees’ goal of full COLA restoration going forward (which would entail a $75 million annual fiscal impact and a $807 million actuarial impact), the House budget’s pension reform would take an important step in addressing retirees’ needs. With that said, this added annual commitment is one of several (such as the increased provider payments I described in last week’s letter) that the House budget added to this year’s expenditures without offsetting savings, which may create stress when developing the 2025-26 budget.
The Senate will review the House budget this week. As noted in last week’s letter, the House budget resulted from agreements reached between the two chambers, so I do not expect the Senate to approve major changes.
B. LEOBOR
After George Floyd’s death at the hands of the Minneapolis Police in 2020, the Senate established a study commission to review LEOBOR. After unsuccessful efforts in the years that followed, both chambers of the Assembly agreed this year on a version of LEOBOR reform containing three basic elements: (1) creating a more balanced panel to review discipline cases, (2) increasing the police chief’s suspension authority from 2 to 14 days and (3) lifting a previous ban on the disclosure of information concerning pending discipline cases.
Before reaching agreement, the House of Representatives amended the Senate bill to prohibit the disclosure of video footage associated with a pending LEOBOR proceeding. When the bill returned to the Senate Thursday night, it considered two amendments. The first (which passed) restored the disclosure of video footage related to pending LEOBOR proceedings. The second amendment (which did not pass) would have permitted a faster dismissal of an officer who engaged in the improper use of deadly force. This amendment was drawn from the example of Minneapolis, where the Police Department terminated the employment of the four police officers involved in George Floyd’s death the day after the incident occurred.
I voted in favor of both amendments. Some Senators, disappointed with the failure of the second of these amendments, concluded that the reforms that remained were inadequate and voted against the bill. While I would have preferred a stronger version of LEOBOR, I voted in favor of the resulting bill because I believe it provides a valuable increase in police accountability. At this point in time, I expect the House to pass the Senate bill and for the Governor to sign it.