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Retirees asked to forego their COLAs

March 14, 2013

PAWTUCKET – Faced with a nearly $150 million unfunded liability in what it calls “our severely troubled police and fire (pension) plan,” the city is asking 350 public safety retirees to forego their annual cost of living adjustment (COLA) for the next three years.
Mayor Donald Grebien and other city officials outlined their proposal to scores of retirees at Tolman High School Wednesday, asking them to agree to the freeze in exchange for promises to fund the plan 3 percent above the annual required contribution (ARC) and make other cuts in city spending, including tightening union contracts, until the plan is made whole.
A representative of the retirees, however, stepped up on stage to tell the mayor “your request for relief is without merit.”
The plan will be put before the City Council next Wednesday for its input and approval.
City Finance Director Joanna L’Heureux stated the situation starkly.
She said the city has a balanced budget for 2013, “but going forward, with no increases to taxes, no union concessions, no changes to the city’s current expenses and no changes to the pension benefits, the city will go bankrupt.
“We will have a cumulative deficit over the next five years of $40 million,” she added. “The state will have no choice at that time but to come in and take over.”
“The financial problem we have is unsustainable,” Grebien admitted, “and the problem as we all know has gone long without being funded effectively. It is going to take shared effort between you the retirees, the active members (of the pension plan) and the taxpayers. That is what it is going to take to reverse this problem.”
The plan has 630 participants, 350 retirees and 280 active members, and depending on the contract they worked under and when they retired, the percentages of their annual COLAs vary greatly, city officials said.
Jeremiah O’Connor, head of the newly formed Pawtucket Public Safety Retirees Association said returning the pension fund to an acceptable funding level “is a step in the right direction,” but blamed the problem on the underfunding of the plan by previous administrations.
Not only did the city years ago not properly fund the plan – employees were to pay 6.5 percent of their salary to the plan with the city contributing three times that amount for each employee – O’Connor alleged, but for several years running in the 1990s, they city didn’t even put in the 6.5 percent it took from the workers’ paychecks.
That was a particular sore spot with many retirees in the auditorium, several of whom spoke afterward of filing suit against the city to recoup that money. O’Connor said some of those years when the pension plan was being underfunded, “were some of the most lucrative in terms of return on investment at that time and would have had a dramatic effect on the fiscal well being of the fund today.
“How could anyone in good conscience ask the retirees to make negative changes to their benefits when the city has acted so irresponsibly?” O’Connor asked.
The pension plan is currently 34 percent funded – it has $73.4 million in assets and $218 million in total liability. The retirees were told that if the city had made all of the annual required contributions, including those taken from them as employees, that together with the earnings that money could have accrued over the years, the plan would now be about 80 percent funded.
Between 1990 and 2009, according to documents distributed at the meeting, the city made either less than the required contribution or, in 1994-96, put no money into the plan at all.
“We can’t reverse what happened in the past,” Grebien told the crowd, “but my administration has since the beginning and is committed to continue to make sure we do our part with 100 percent of the ARC payments.
“The one thing we will not do, and now with state laws we cannot do, is not meet our ARC requirements,” the mayor said. “Nobody said this was going to be easy, however, our financial conditions require that all our stakeholders make sure the pension system is sustainable so it is available to you, the active members and is affordable for the taxpayers.
The mayor encouraged the retirees to organize and obtain legal representation and reach an agreement with the city on maintaining the plan into the future.
The city is due to submit its funding improvement plan to the state Pension Study Commission by May 1.
Grebien acknowledged that the city has been slow in developing its plan, but said that is because “we pulled out all the possibilities,” to strike the correct balance between what is expected from the retirees, the active members, the city government and the taxpayers. “There is no way to do this without coming back to you and have you be part of the solution,” Grebien told the retirees.


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