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Officials: Pension bill is lacking

November 2, 2011

During a RI Joint House and Senate Finance Committee hearing on pension reform at the Statehouse Tuesday, Pawtucket Mayor Donald Grebien, second from right, states his case.

PAWTUCKET—Mayor Donald Grebien is all for pension reform — he's spearheaded some big proposed changes for the city's public safety employees — but he thinks the plan presented by state General Treasurer Gina Raimondo and Governor Lincoln Chafee does not do enough to help the locally-funded pensions plans like Pawtucket has.
As such, Grebien joined a group of other mayors at the State House on Tuesday to relay their concerns to a legislative committee studying changes in Rhode Island's government workers' pension system, which is facing a $9.4 billion shortfall. The pension plans covering municipal workers—about three dozen of them—represent a total of about $2 billion of that deficit, according to state officials. The mayors requested that legislation be passed allowing them to utilize the features in the state-run pension reform plan.
The controversial pension reform legislation presented by Raimondo and Chafee would make some key changes in the state-run Municipal Employees Retirement System (MERS). Among the proposals are the suspending of cost-of-living adjustments (COLAs) for most of Rhode Island's retired government workers until the plans meet funding goals, raising the retirement ages, and switching many employees into “hybrid” retirement plans that involve traditional pension features along with a 401K-style investment piece.
For the locally funded pensions, Raimondo's and Chafee's draft is much more open-ended, calling for cities and towns to conduct “actuarial experience studies” to see how their current pension plans are faring going forward. If the plan is deemed as being at a “critical” funding level, which Pawtucket's would likely be, the municipality would be required to develop a comprehensive plan towards solvency (similar to what the state has done) within the next year.
Among the benefits touted for the non-MERS proposal is that it recognizes that each municipality has a unique set of financial issues and allows for municipal leaders to tailor their own solutions. It is also said to respect collective bargaining by not abrogating existing collective bargaining agreements.
Additionally, the proposal for non-MERS holds that a “Solvency Review Committee” would be established to support and advise municipalities during their planning process, and which will ultimately review and approve submissions. It also contains an enforcement piece in that failure of a municipality to develop an acceptable comprehensive plan to achieve solvency within a specified time line will result in the withholding of state aid for the municipality and suspension of COLAs.
However, Pawtucket's mayor and several others, including Providence Mayor Angel Taveras, Cumberland Mayor Daniel McKee and Cranston Mayor Allan Fung stated publicly that they any such pension reform should be comprehensive and include similar changes as proposed for the state-run system. They are united in support of a three-point local reform plan (called the three Rs: relief, restraint and resolve) that they say will alleviate considerable financial strain on cities and towns while at the same time providing retirement security to both current and retired municipal employees.
The first point calls for “relief” for a locally administered pension plan deemed to be in critical status through the suspension of the COLAs. For each year in which the annual COLA is suspended, the municipality will allocate no less than 50 percent of the annual savings attributable to the suspension back into the pension plan fund.
Under the mayors' plan, the suspension of the COLA would would last no longer than 19 years, but could end prior to that time if an annual actuarial valuation study finds that the pension plan's funded percentage is greater than or equal to 65 percent, and that re-instating the COLA would not make it drop to below 60 percent. If this is the case, the annual COLA would be reinstated for the next plan year.
Secondly, the proposal calls for “restraint,” saying that the locally administered plans should mirror the state-funded benefit reforms. Upon the expiration of any current collective bargaining agreement, no municipal ordinance, collective bargaining agreement or arbitration award will require retirement benefits that exceed the actuarial value of the retirement benefits afforded for employees in the MERS.
Thirdly, the mayors' plan calls for “resolve” in regard to having all new employees transition into the MERS. They say that if a municipality's locally administered pension plan's funded percentage is determined by actuaries to be equal to or greater than 100 percent, then all employees hired after the date that fact is determined should participate in the MERS.
In Pawtucket, the private pension plan for police and fire employees currently has about $130 million in unfunded liability, according to Finance Director Ronald Wunschel. If the Raimondo/Chafee pension plan is passed in its current form, Pawtucket would only have 10 years to get this public safety pension plan stabilized, which could also add to the city's tax burden.
Wunschel said that Pawtucket's police and fire pension plan is only about 30 percent funded according to the latest audit. If the city's plan was found to be in “critical” status by the proposed solvency review board, city officials would have to work with the unions to come up with a strategy that would improve the pension plans funding percentage by at least 1 percent annually until it is at least 60 percent funded.
A few months after taking office, Grebien proposed (and the City Council approved) several pension changes in preparation of the negotiations of new police and fire contracts. Both public safety contracts expire in June 2012. These include requiring police and fire pension plan members to be at least 55 years old and have 27.5 years of service to be eligible for retirement. Previously, there had been no age limit for retirement and police and fire union members could retire after 20 years of service.
At the State House on Tuesday, Grebien told the legislative committee that as municipal leaders they need reforms to the pension system that are both comprehensive and equitable, not only for the MERS plans but for the private plans “which, in some worst-case scenarios, could threaten not merely our financial well-being but our very solvency as municipalities.”
Grebien noted that his administration had yet to complete an actuarial study of its private pension plans to assess the savings. However, he urged passage of the amendment regarding the private plans and called for a need for comprehensive change. Without it, the mayor said, municipalities like Pawtucket will have to overtax their residents while the unfunded liabilities will continue to grow and the pension plans problems remains unsolved.


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