PAWTUCKET — Despite discussions and individual lobbying for different options, the City Council on Tuesday postponed any decision on a fix for the unfunded police and firefighters' pension plan.
At a special session of the City Council that followed a Finance Committee meeting, the council voted to table its decision on a new funding option that passed by a slim margin. The council will take up the matter at its next regular council meeting that is scheduled for April 24 at City Hall.
The council has been asked by Mayor Donald Grebien's administration to consider a resolution to address the troubled public safety pension plan. With an unfunded liability of almost $145 million, the municipal pension plan is only at 34 percent funded and considered by the state as being in “critical” status. To change this designation requires that the plan be funded to a minimum of 60 percent.
The Grebien administration, with the help of an independent actuary, has proposed a Funding Improvement Plan (FIP) that is based on 350 public safety retirees giving up their annual cost of living adjustment (COLA) for the next three years. In exchange, the city would fund the plan at three percent above the annual required contribution (ARC) and make other cuts to city spending until the pension plan is made whole again.
On Tuesday night, the council voted 5 to 4 to support a slight twist on the administration's proposal. Councilor John Barry made a recommendation for an amendment to exempt from the three-year COLA freeze those retirees whose annual pension benefit is less than $30,000.
Barry told the council that of the 350 retirees, approximately 105 people would fall into this category and would be able to still receive their COLA. He added that many in this group are older retirees or widows who would be feel the impact of a COLA freeze more severely than those collecting higher pension amounts. The impact to the FIP would be about $3 million, but Barry said the city should be able to recoup this amount from future positive returns on the pension fund's investment, increases to state aid, or other cost-cutting measures.
Prior to the vote, Director of Administration Tony Pires cautioned the council that the retirees have legal “property rights” under the pension system and that in the event of any litigation, a proposal such as this that excludes a certain segment of the retirees from the COLA freezes could be viewed as discriminatory.
Barry agreed that the solution is not perfect, but noted that most of the retirees collecting under $30,000 a year are those who retired a long time ago or widows who don't even collect the full benefit. He added that a COLA freeze on someone with a pension of $18,000 a year would be felt more than someone with an annual pension over $30,000.
Barry added, “We're already paying for the mistakes of the 90s, but there is no magic solution. If we can mitigate for those who seem to be the least capable, I think we should try.”
While some councilors seemed to agree with Barry, others wanted to stay with the original option (known as option C) being recommended by the administration. Noting that many elements of the pension plans are covered by contractual agreements, Councilor Terry Mercer said he was concerned about any “arbitrary and capricious thresholds for COLAs.”
Mercer added that if it wasn't for the “very egregious actions” on the part of former administrations, the public safety pension plan would likely be around 80 percent funded. He noted that while there is no turning back, he thought option C “ was “designed to share the pain.” However, he also said that, going forward, much thought needs to be given to pension benefits and COLAs for new hires.
Council President David Moran, who also was one of the dissenting votes on Barry's amendment, said he thought there was “too much cherry-picking” with it and felt more comfortable with the original option C as it stands.
Several of the longtime councilors addressed the harsh criticism that has surrounded past administrations concerning several years during the early 1990s when it was reported that ARC payments were not made by the city into the police and fire pension fund.
There have been further questions and allegations from retirees and active participants alike about whether former city officials had failed to put even the money that was directly taken from police and fire employees into the pension fund.
Councilor Thomas Hodge noted that as a councilor, he had “sat here in 1992 and 1993, and we made our decisions on the best information that we had available to us.” He said that “while they look like egregious mistakes, I don't think they were.”
Earlier, Hodge had acknowledged that with the current administration's recommended pension plan fix, “there is pain, but if we take these steps, there won't be catastrophic pain. If we do not take this step, insolvency could occur.”
Barry also noted that back in the 1990s, when the council saw that ARC payments weren't being made during some years, members had brought in an actuary for questioning. He said the council was told at the time that the pension plan “was making so much money that we didn't have to worry about it.”
Pires told the council on Tuesday that his financial team has dug deeper through the available records and “cannot find a situation where payments were not made.” He acknowledged that this review of 20-year-old records was not to the level of a “forensic audit” and while he could not likely show councilors a deposit slip, “We are reasonably sure those payments were made.” He said he was told that, besides the ARC payments, there could have been early retirements or other factors that caused the police and fire pension plan to become so severely underfunded.
Barry added, “No one wants to be in the position we're in,” and stressed that he and the other councilors are also keeping the taxpayers in mind. However, he noted that these pension commitments were made to employees long ago and they have legal rights to some of the benefits.
Under Barry's proposed funding plan and other changes being negotiated through collective bargaining, he said the active police and fire employees are going to contribute more, the city is going to contribute more and some retirees will most likely have to take a COLA freeze. He added that even with these changes, there is always uncertainty involved in the investment market.
During the special session, Councilors Mark Wildenhain and Jean Phillipe Barros had also suggested different pension funding scenarios, but each failed to win the support of their fellow councilors. Wildenhain had lobbied for an amendment that would have eliminated the COLA for retirees who receive an annual pension of more than $40,000, and Barros had proposed eliminating the COLA for 10 years.