The Pench!

PROVIDENCE, RI – All this week, WRNI will be digging into Rhode Island's pension crisis. WRNI's Megan Hall and Bradley Campbell wondered who's behind all those checks that go out to retired workers every month, so they paid a visit to the men behind the money.

Bradley- So, it's easy to read or hear a story about Rhode Island's pensions and sort of glaze over. It seems like such a complicated problem.

Megan- But it's not.

Bradley- No. It's not. Wait. It's not? What do you mean?

Megan- It's really pretty simple- if Rhode Island doesn't act, we won't have enough money to pay the retirement benefits we've promised to state and local workers.

Bradley- But retirees are getting their checks now?

Megan- Right.

Bradley- So what's the big deal? Why should I care? The Bruins won the Stanley Cup. Life is perfect.

Megan- I hate to be Chicken Little, but life won't be perfect down the road. The amount we owe to current state workers is so big it could hit every taxpayer in the wallet, bankrupt the state and ruin any chance of crawling out of this recession

Bradley- Oh. How did this happen?

Megan- For starters The state didn't put enough money into the fund for many years.

Bradley- Ouch.

Megan- But it's more than that. To understand the problem Rhode Island faces you really need to how the retirement fund works. And that comes down to two rooms.

Bradley- Just two rooms?

Megan- Essentially. We're simplifying a little bit here. But by the end of the story you the listener should be able to understand why Rhode island's pension fund is way too small.

Megan- So let's start with room number one.

"Hi I'm Kenneth Goodreau and I'm treasurer Raimondo's chief investment officer."

Megan- Ken's office doesn't look like anything special.

"It's a little messy and I apologize," says Goodreau.

Megan- There are piles of reports and papers all over the floor, two desks, and five computer screens for monitoring something very important- the money Rhode Island has to pay retired workers.

Megan to Ken: "And you have a gigantic calculator. Are you calculating how much money we have on that calculator?"

"I figure the bigger the calculator, the more money it will return," he says.

Megan- This money comes from three source-- people who work for the state and contribute parts of their paycheck, the taxpayers, and investments. That's the stuff Ken monitors-

Megan to Ken- (So how are we doing today? )Today the market is up, and because most of our accounts are correlated with the market we should have a decent day. (How did we do yesterday? ) Yesterday was a bit of a tougher day, but the day before was good.

Megan- Ken says in general, the market is doing well this year and Rhode Island's pension fund is growing. But that's not always the case.

Bradley- But that's something you expect with investments right? They go up, they go down.

Megan- Right, but the hope is, in general, your money gets bigger, not smaller. And it has.

Megan to Ken- Over the past ten years, what kind of increase have you seen?

"Averaged something north of 4 percent," he says.

Bradley- Well, that's better than nothing, right?

Megan- Maybe, but the problem is Rhode Island assumed that money would increase by a lot more more than 8 percent.

Megan to Ken- In your experience working for a corporate client would anyone else expect that much of a return?

"Not my job to figure out what people's expectations are " he says.

Megan- Ken won't say it, but I will. That number was totally unrealistic. Financial experts warned the state not to expect that much of an increase but it did.

Bradley- But so what, four percent, eight percent, what's the difference?

Megan- Let me put it this way Remember how state employees send a bit of their paycheck to the pension fund every month?

Bradley- yeah..

Megan- The state government calculated what their fair share should be based on the assumption that the fund would grow by more than 8 percent.

Bradley- But you just told me the predictions were way off.

Megan- Exactly. Right. So the money they contribute is not nearly enough.

Bradley- Ahh So how bad is it?

Megan- Well, if Rhode Island employees paid the actual cost of their pensions, they'd have to give up twenty two percent of their paychecks every week. And that percentage is growing.

Bradley- That's crazy. No one can afford to give up that much.

Megan- Right so, now state says it's learned its lesson. Just this year, it finally stopped expecting the fund to grow by more than 8 percent.

Bradley- What's the new number?

Megan- 7.5 percent. And experts say the chance Rhode Island's money will grow by That much is less than 50/50.

Bradley- So the state hasn't really learned its lesson.

Megan- Maybe not .

Bradley- And that's not the whole story. Remember how we said there are two rooms?

Megan- Yeah

Bradley- Well, the first room dealt with trying to grow Rhode Island's money. . And the second room that's where we get to the expensive part of this pension story. Meet Frank Karpinski.

"I am the executive director of the employees retirement system of Rhode Island," he says.

Bradley- Frank's office looks just about the same as Ken's. Only it doesn't have nearly as many fancy computers. But what he does in this office is just as important.

Megan- What is it?

Bradley- Frank makes sure Rhode Island retirees get their money every month. That means sending out a lot of checks.

"The exact number is only 2,214 checks. And the rest are direct deposits which are 25, 013," he says.

Bradley- That's a total 27,227 checks and direct deposits going out each month. And within some of these checks are the promises of the candy store days.

Megan- what were the Candy Store days?

Bradley- In the 1970s and 1980s the state made some pretty sweet offers. Get it?

Megan- Ok, yeah Keep going.

Bradley- Employees could retire after working only 28 years, regardless of their age. And if some people hadn't worked enough years to retire, they could buy them.

Megan- Did the state have a plan to pay for these new benefits?

Bradley- No. They thought the future would take care of itself. Truthfully, There's not that much communication between people who make the policy changes and folks like Frank, who see the expenses piling up.

Frank to Bradley- "The only thing that may come out of our office is some kind of fiscal note. But that's it. We are not decision makers, but administrators." (So no one checks with you?) "No. No." (That's got to be frustrating.) "I get paid to administer."

Megan- Is it kind of like giving a credit card to your teenagers, who spend the money but don't worry about paying the bill?

Bradley- I'll let Frank answer that

"I would never give my teenagers my credit card," he says.

Bradley- And frank says he probably wouldn't give his credit card out to the General assembly either.

Megan- So, that's the problem, the state promised a bunch of benefits it couldn't pay for?

Bradley- Yeah and the problem is getting bigger as more and more people retire.

"On average we're adding about a thousand people annually," he says.

Bradley- And that's more than the people who are leaving the retirement system. In other words: dying.

"Roughly between 300 and 400 come off it," he says.

Bradley- And as baby boomers retire, and people live longer, the number of people receiving benefits will just get bigger and bigger. So Frank will send even more money to more people.

Megan- And we don't have enough money to give them the benefits the state promised?

Bradley- Nope. That's what we call the unfunded liability- the difference between what the state owes in the future and what the state actually has.

Megan- So how much more money do we need?

Bradley- The state thinks it's about $7-billion.

Megan- Where are we going to get that money?

Bradley- The tax payers. I mean, right now, about ten cents of every tax dollar goes to filling in that gap.

Megan- That's not too bad.

Bradley- But it's growing. If Rhode Island doesn't figure this out In 7 years, it will be 20 cents out of every tax payer dollar.
Hence the problem--

Megan- The state thought its money would grow by more than it did- that's what Ken is monitoring in his office.

Bradley- So it planned to spend more than it had, those are the checks that Frank sends out of his office.

Megan- And We need an extra 7 billion dollars to make sure those checks keep coming.

Bradley- How do we get out of this mess?

Megan- Nobody's really sure. But people have some ideas and a whole lot of opinions, which we'll be telling you about this week, in a series WRNI is calling, "The Pench."

Listen to WRNI's entire series on Rhode Island's pension crisis: The Pench.

Do you have insight or expertise on this topic? Please email us, we'd like to hear from you.