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UPDATE 1-Rhode Island reaches pension deal to secure billions in savings

Tim McLaughlin
Friday, 14 Feb 2014 | 5:33 PM ET

PROVIDENCE, Rhode Island, Feb 14 (Reuters) - Rhode Island officials on Friday said they reached a proposed settlement to end six challenges to the state's sweeping pension fund reform, a development that would remove road blocks to saving taxpayers several billion dollars over the next couple of decades.

Under the settlement, the state's unfunded pension liability would fall to $5.05 billion, down from an unfunded liability that approached $9 billion before reform action was taken from 2009 to 2011. The state's reform had originally called for paring the unfunded liability to about $4.8 billion.

The deal would include key elements of the state's 2011 reform act: an increased retirement age, inclusion of a 401(k)-style retirement plan, and suspension of cost-of-living adjustments until the pension reaches a healthy funding level.

"I'm very confident this is going to be successful," Governor Lincoln Chafee said at a press conference.

The deal is subject to several layers of approvals, including a fairness determination by a state judge, a vote by state workers and retirees, and approval by the legislature, Chafee said.

Rhode Island's pension reform is considered among the most far-reaching of any of the 50 U.S. states. Attorneys, organized labor and many investors in the $3.7 trillion U.S. municipal bond market have been awaiting the outcome of mediation, including details of the settlement, for indications of what kind of pension changes could potentially survive challenges in other municipalities.

The settlement could lead to savings of up to $5 billion over the next couple of decades, Rhode Island Treasurer Gina Raimondo said.

"It's a practical solution to a serious problem," she said, adding that the deal will save the state millions of dollars in legal costs. Chafee noted that the state had received five unfavorable rulings on its reform before state courts.