CENTRAL FALLS â State-appointed Receiver Robert Flanders had called it âthe Big Ask.â
He invited about 150 retired police, fire and municipal employees to the high school auditorium and asked them to sign on to a proposal to cut the pensions they are living on by as much as 50 percent as well as a health insurance program that would require them to pay 20 percent of their premiums for the first time and co-pay 20 percent of the subsequent costs, including hospitalization.
As they sat and listened, mostly quietly and politely, many of their faces conveyed a combination of shock, anger and worry.
The reductions at first blush seem modest, allowing those on the current John Hancock pension plan to collect 40 percent of their annual salary after 20 years of service instead of the current 50 percent after 20 years and a maximum benefit of 55 percent after 30 years of service rather than the current 65 percent. But those rules, along with other changes such as a new minimum normal
retirement age of 60 with10 years of service or early retirement at 55 with 10 years of service (or at any age after 25 years on the job) would be applied retroactively. Currently, workers retiring after July 1, 1992 could retire at any age after 20 years of service; those who retired before that date could do so after 25 years at any age.
Police and firefighters on disability pensions, who are currently being paid 66.66 of the amount received by active employees of the same rank until they reach normal retirement age, at which time they receive the same benefit as regular retirees until age 62 or 65 (depending on the contract or ordinance that covered them), when their pension is reduced to 50 percent would be hit the hardest. Their pension would be reduced retroactively to 50 percent of the salary they received when they retired with no change at the normal retirement age.
There is a âcircuit breakerâ provision to prevent a pension benefit from being reduced by more than 50 percent and no pension below $10,000 annually would be reduced.
Prospectively, meaning going forward from July 1 of this year and not retroactive, cost of living adjustments (COLAs) for public safety employees would be reduced from the percentage being received by active employees to 2 percent and would no longer be compounded. So a person with a $20,000 annual pension would get a $400 COLA next year and the following year would again get a $400 COLA, not 2 percent of $20,400, which is the way current COLAs are compounded.
So, according to an example provided by the receiver: a public safety employee who retired at 55 with 30 years of service has a current annual pension of $40,037 with compounded COLAs. That is a benefit based on 65 percent of final salary. The new formula has a maximum of 55 percent so his benefit would be reduced to $33,878. But because he started receiving benefits at 55 rather than 60 an âearly retirement reduction factorâ would be applied, bringing his annual benefit down to $21,217 with a COLA of $424 each year.
Flanders said the changes are devised to achieve $2.5 million in savings annually, about half of the current structural deficit of just over $5 million annually. About $1.75 million would come from pensions and another $750,000 from medical insurance changes. It is estimated that the changes would reduce the cityâs unfunded pension liability nearly in half, from $80 million to about $40 million.
They cityâs annual budget is about $17 million.
Asked why the city isnât looking to refinance the unfunded liability with bonds, Flanders said the cityâs bond rating has sunk so low it is âno longer credit worthyâ for that kind of bonding.
The receiver acknowledged that he does not have the power to impose the new plan on the retirees, and they must voluntarily agree to the changes. âYou have every right to tell me no,â Flanders said.
But at the same time, he told them that there are few alternatives and no good ones. If a substantial percentage of the retirees do not agree to switch to The Flanders Plan, there is a high likelihood that the city will have no option but to seek Chapter 9 bankruptcy because the pension plan has been so badly underfunded by a succession of city officials going back to decades ago.
âThere is no more there there,â Flanders said at the start of the nearly two-hour long session.
The specter of bankruptcy didnât seem to scare many of the retirees.
Michael Long, a retired police sergeant and attorney, said after a long give-and-take with Flanders during the question-and-answer portion of the meeting said that maybe the retirees âwill take our chances with Judge (Arthur) Votolotoâ (the U.S. Bankruptcy Court judge who sits in Providence). That line received enthusiastic applause from nearly the entire auditorium and Long got a standing ovation when he went back to his seat.
After the meeting, Flanders said a bankruptcy filing by the city would not necessarily to Votolato. If a Rhode Island municipality filed for bankruptcy, the receiver explained, the papers go to the Chief Judge of the First Circuit Court of Appeals, who would then appoint a bankruptcy court judge to hear the case and that might not be Votolato.
Besides, Flanders added, the city would go into Bankruptcy Court with a plan for reorganization and the plan as it applies to retirees would be similar or identical to what he proposed on Tuesday.
Unlike Flanders, a bankruptcy judge would have the power to terminate union contracts and make other unilateral changes in the status quo, including for retirees.
James Meunier, a 70-year-old retired police officer stood before Flanders and told him âI canât afford Medicare or Medicaid. Are you just going to throw me to the wolves?â Meunier said, âthere is an exception to every ruleâ and asked to be kept on the current health insurance plan.
Flanders gave no response.
Robert Noury, 44, said he retired just last week, before the changes were announced, and asked if he could rescind his retirement and go back to work. He also got no response from Flanders. Talking to reporters afterward, Flanders said such a request would have to be handled âon a case-by-case basisâ and would depend on factors such as whether that personâs position is needed.
All of the retirees will receive a packet in the mail in the next few days, detailing the exact figures on pension benefits and medical insurance costs as they apply to each individual. Included will be a ballot, to be sent back within 7 days, saying whether or not the person agrees to the changes.
Flanders would not be specific about what percentage of the retirees would have to agree to the changes before he would go forward with them and not bankruptcy, but he said it would have to be âsubstantial.â
The receiver is also in negotiations with unions representing city employees, trying to extract concessions on current contract benefit. Asked if the retirees not going along with the proposed changes would be a âdeal breakerâ in avoiding bankruptcy, Flanders said it would be a deal breaker if any of the constituent groups do not go along with his reorganization proposals.
He said the pension changes are the biggest single segment of that plan because underfunded pensions are the single biggest cause of the cityâs financial woes.
âI hope on reflection they will at least consider the idea that it is better to get something rather than potentially nothing and I hope they wonât say to us âLetâs just throw this into a bankruptcy and weâll take our chances there.ââ