Keeping Our Promise to Rhode Island Retirees… Responsibly
For thousands of Rhode Island public employees, a Cost of Living Adjustment, commonly called a COLA, wasn't viewed as a bonus.
It was part of the retirement system they worked under and planned around.
Then Rhode Island's pension crisis changed everything.
The reforms that followed helped put the pension system on stronger financial footing, but they also changed the retirement expectations of thousands of people who had spent their careers serving our communities.
Now that the system is stronger, I think it's fair to ask: Can we find a responsible path toward keeping the promise we made to Rhode Island retirees?
First, There Isn't Just One Rhode Island Pension Plan
This is important, because it's easy to hear that Rhode Island has billions of dollars in its pension fund and assume everyone belongs to the same plan.
They don't.
The Employees' Retirement System of Rhode Island, or ERSRI, administers retirement benefits for several groups, including State Employees, public school Teachers, participating Municipal Employees, State Police and Judges.
As of June 30, 2025, ERSRI reported approximately $12.1 billion in assets and was providing benefits to 31,211 retirees and beneficiaries, but that $12.1 billion isn't excess money sitting in one checking account.
ERSRI maintains separate pension obligations, and individual plans can have very different funding levels.
How the Pension System Is Funded
Rhode Island's pension plans are funded from three basic sources:
Employee contributions from public workers
Employer contributions from the state and participating cities and towns
Investment earnings on pension assets
In fiscal year 2025, ERSRI reported approximately $1.03 billion in employee and employer contributions, about $1.14 billion in benefit payments, and approximately $1.25 billion in investment gains.
It was a strong investment year. The pension fund returned 8.42%, above its 7% assumed rate of return, but investment returns change from year to year.
That's why pension promises have to be evaluated over decades, not based on one good, or bad, year.
So How Did We Get Into Trouble?
Rhode Island's pension problems didn't appear overnight, and there wasn't one single cause.
They developed over decades.
First, the State Employees and Teachers plans were already carrying substantial unfunded liabilities.
Simply put, the assets that had accumulated in the pension system weren't sufficient to cover the estimated value of all the benefits that had already been promised.
That problem grew over time then came the 2008 financial crisis.
Like pension funds across the country, Rhode Island's investments were hit by the market collapse. Pension accounting recognizes investment gains and losses over time, so those losses continued affecting the system's financial condition in the years that followed.
Rhode Island also discovered that some of its assumptions had been too optimistic.
Pension systems have to make long-term assumptions about things like investment returns, employee salaries, retirement patterns and how long retirees will live.
In 2011, Rhode Island adopted more conservative actuarial assumptions, including changes to expected investment returns and life expectancy.
That didn't suddenly create billions of dollars in new pension promises.
It gave Rhode Island a more realistic measurement of the promises it had already made, and the picture wasn't good.
The combined funded ratio for the State Employees and Teachers plans fell from roughly 58% to about 48% under the updated assumptions and recognition of prior investment losses.
Required employer contributions were also climbing dramatically.
For State Employees, the actuarially determined employer contribution rate increased from roughly 23% to 36% of payroll.
For Teachers, it increased from roughly 22% to 35% of payroll.
Those employer contributions ultimately come from state and local public budgets.
There were also benefit costs to consider, including retirement benefits and compounded COLAs, which increased the system's long-term obligations, so it's important to be clear: COLAs didn't single-handedly cause Rhode Island's pension crisis.
Neither did retirees.
The crisis resulted from a combination of long-standing unfunded liabilities, investment losses, actuarial assumptions, funding decisions and the growing cost of benefits promised over many years.
By 2010–2011, Rhode Island could no longer ignore the problem.
What Happened in 2011?
By 2010, the pension system covering Rhode Island's two largest groups, State Employees and Teachers, had a combined funded ratio of approximately 48.4% and an unfunded liability of roughly $7 billion.
That does not mean every public pension plan in Rhode Island was 48% funded. Municipal plans, State Police and other retirement plans had their own financial conditions.
In 2011, Rhode Island enacted the Rhode Island Retirement Security Act.
Among other changes, the legislation substantially changed COLAs, increased retirement ages for many employees and created a hybrid retirement system combining a traditional pension with a defined-contribution component.
The goal was to address a serious long-term funding problem.
The reforms improved the financial outlook of the system, but they came at a cost.
Promises Matter
Teachers, State Employees and other public servants made career and retirement decisions based on the retirement benefits available to them.
Many spent decades contributing to the pension system with an expectation that their retirement income would have some protection against increases in the cost of living.
Then the rules changed.
Whatever one's opinion of the 2011 reforms, I don't think we should lose sight of the people affected by them.
The state's own Pension Advisory Working Group concluded that the reforms strengthened the financial position of the pension system while also imposing significant financial consequences on employees and retirees.
Promises made should be promises kept whenever we can responsibly keep them.
COLA Didn't Simply Disappear
The current system is more complicated than saying Rhode Island either has a COLA or doesn't.
For 2026, the state's calculated COLA is 3.34%.
That number isn't an arbitrary flat percentage. Rhode Island's formula considers both inflation and the pension fund's investment performance.
Who receives the full amount depends partly on when someone retired and, for certain retirees, how well funded their pension plan is.
Eligible State Employees and Teachers who retired on or before June 30, 2012 receive the full calculated COLA.
Eligible State Employees and Teachers who retired after that date currently receive 25% of the calculated COLA while their plans remain below the 75% funding threshold.
For 2026, that means approximately 0.84% instead of 3.34%.
Municipal employees can be different because individual MERS pension units have their own funding levels.
Here's a Local Example
Consider two people who both spent their careers serving North Kingstown.
A retired North Kingstown firefighter belongs to the North Kingstown Fire MERS plan.
As of June 30, 2025, that plan was approximately 91.1% funded which is well above the 75% threshold.
An eligible North Kingstown firefighter can therefore receive the full 3.34% calculated COLA in 2026.
A retired North Kingstown public school teacher, however, belongs to Rhode Island's statewide Teachers plan.
Teachers from North Kingstown, Narragansett, Providence and every other participating school district are part of that same statewide pension group.
As of June 30, 2025, the Teachers plan was approximately 67.9% funded.
So an otherwise eligible Teacher who retired after June 30, 2012 currently receives 25% of the calculated COLA or approximately 0.84% in 2026.
That isn't because Rhode Island decided firefighters deserve more than teachers.
It's because they belong to different pension plans with different funding levels.
The System Is Getting Healthier
There is encouraging news.
As of June 30, 2025:
The State Employees plan was 63.9% funded
The Teachers plan was 67.9% funded
MERS General Employee plans were about 91.5% funded overall
MERS Public Safety plans were about 89.0% funded overall
Many municipal pension plans are already healthy enough to provide the full COLA. For 2026, ERSRI identified 95 MERS plans whose eligible retirees qualify for the full calculated COLA.
The pension landscape today is very different from what Rhode Island faced in 2011.
There Are Already Guardrails
Another important fact is that a COLA generally isn't applied without limits to someone's entire pension.
For many retirees, the 2026 full COLA applies only to the first $31,507 of their pension benefit. Different caps can apply to certain retirees depending upon retirement date and plan status.
The cap itself is indexed and changes over time, so the current system already contains several safeguards: a formula for calculating the COLA, funding thresholds, eligibility requirements and limits on the amount of pension subject to the adjustment.
That matters when discussing what Rhode Island might responsibly do next.
A Phased Path Forward
I don't believe our choices have to be: Restore everything tomorrow or do nothing.
Today, many eligible post-2012 State Employees and Teachers receive 25% of the calculated COLA.
Instead of leaving them at 25% until the pension plan reaches 75% funded and then jumping to the full benefit, I think it's worth asking the state's actuaries to examine a gradual approach.
Could we create funding benchmarks that move eligible retirees from:
25% → 50% → 75% → 100%
as their pension plan becomes financially stronger?
Those are illustrative percentages, not a proposed formula.
The actual thresholds should be determined through actuarial analysis not because a particular number sounds good politically.
The goal should be simple: Give retirees a clear path toward restoration while protecting the pension system they depend on.
We Don't Need to Reinvent the COLA Formula
I also don't think Rhode Island needs to abandon its current COLA calculation and simply promise a flat 3% every year.
The existing formula already considers both inflation and investment performance.
That makes sense.
If the cost of living isn't rising rapidly, the pension shouldn't automatically assume the same increase it would during a period of high inflation.
And because investment performance helps fund pension benefits, the financial performance of the fund should matter too.
The question I think we should focus on isn't necessarily how Rhode Island calculates the COLA.
It's how quickly we can responsibly restore more of that calculated COLA to retirees who aren't currently receiving the full amount.
But We Still Have to Pay for It
The $12.1 billion in pension assets isn't excess money.
Those assets exist to pay benefits promised to current and future retirees.
Yes, COLA payments themselves come from pension assets, but increasing benefits also increases the system's liabilities.
If those additional liabilities aren't offset by sufficient assets, investment gains or other funding, the unfunded liability can increase.
Employer contribution rates are actuarially determined in part to pay both the cost of benefits being earned today and existing unfunded liabilities.
For State Employees, those employer contributions come from the state.
For Teachers, the employer cost is shared between the state and local communities.
For municipal employees, participating cities and towns make the employer contributions.
Those are public budgets.
So while taxpayers don't write a separate "COLA check," they ultimately help support the employer contributions necessary to keep these pension promises.
That's why how we restore COLA matters just as much as whether we restore it.
Keeping the Promise
I don't want Rhode Island looking for reasons why we can't restore more of the COLA.
I want us looking for a responsible way that we can.
The people we're talking about spent careers teaching our children, protecting our communities and providing public services.
Many made retirement decisions based on promises made to them, and it's important to remember that retirees didn't create the pension crisis.
Rhode Island arrived there after decades of funding decisions, investment experience, actuarial assumptions and benefit commitments.
When the system reached a crisis point, retirees and public employees were asked to absorb some of the solution.
Fifteen years later, the system is stronger.
Maybe the next chapter should be about finding a responsible way to give retirees more of what they gave up while protecting the progress we've made.
We can protect taxpayers.
We can protect the pension system, and we can work toward keeping our promise to Rhode Island retirees.
Those goals don't have to be mutually exclusive.
Keeping a promise requires more than good intentions. It requires a plan that can last.
