There is a big difference between suggesting that something needs fixing and having the temerity to actually do it. All across the state there have been cries to reform pension systems and contain costs. However, one really needs to look at how the systems got to where they are in order to make them stronger for the future.
In the 1950s, 1960s, and for most of the 1970s, Warwick did not properly fund its pension plans and make the necessary annual contributions needed to keep them solvent. Some years the city would make proper contributions and in others there would be no contribution beyond the actual benefits paid out.
But that all changed with the creation of the Police II pension system in 1971, which included an ordinance requirement that the pension be properly funded. The Police II pension system was followed by the creation of the Fire II system by the Donovan administration in 1992. Then, in 1995, then-Mayor Lincoln D. Chafee’s administration developed a 40-year funding formula designed to address the historical underfunding of the Fire and Police I pension systems. The implementation of these new tiered pension systems has paid dividends over time.
Today, even with the investment returns for pension funds down considerably over the past several years, the Police II system is funded at approximately 98 percent, Fire II is funded at approximately 88 percent, and the municipal pension system is funded at approximately 80 percent.
Overall, the city’s pension plans are in better shape than many other municipal or state systems. Nevertheless, in Warwick, the biggest unresolved issue is the original police and fire pension plans. Today, they are funded at only 27 percent of what is needed. So, while people can suggest that the city has failed to do what is right, they instead should be asking the original creators of the pension systems why there was no leadership when the plans were created. Had even a small amount been contributed annually in those years, the unfunded liability today would be very small.
I have proposed a package of pension reforms. These reforms will bring meaningful and cost-effective changes for the future, with initial annual savings of nearly $500,000 and approximately $2.5 million when fully implemented.
New pension plans for all employees hired after July 1, 2012 will see a higher mandatory retirement age, along with an increased minimum years of service necessary to retire, a 20 percent reduction in the formula to determine the annual pension benefits and a 5 percent reduction in the maximum benefit. The new plans will also require a switch from tax-free disability pensions to regular pensions upon reaching normal retirement age, resulting in reduced disability pensions from 66 percent to 50 percent. Further, the plans also include a reduction in the COLA for police and fire personnel calculated at 75 percent of the previous year’s CPI, capped at a maximum of 3 percent.
It took in excess of 50 years for the original police and fire pensions to get to the point where they are currently, and there is more than enough responsibility to go around for not dealing with the issue as it has developed. However, we must continue to look forward. The pension-reform legislation is a good place to start to ensure that the mistakes of the past do not continue into the future. •
Scott Avedisian is mayor of Warwick.
