R.I. municipalities finally acknowledge pension woes

PERSONNEL DECISION: Cranston Mayor Allan W. Fung has proposed a plan that would freeze cost-of-living increases and cap future increases at 3 percent, but the changes have yet to be adopted by the City Council. / PBN FILE PHOTO/NATALJA KENT
PERSONNEL DECISION: Cranston Mayor Allan W. Fung has proposed a plan that would freeze cost-of-living increases and cap future increases at 3 percent, but the changes have yet to be adopted by the City Council. / PBN FILE PHOTO/NATALJA KENT

If the first step toward a solution is admitting you have a problem, then 2012 has seen progress for Rhode Island’s distressed, locally run, municipal pension plans.
One year ago, Rhode Island made national headlines when it cut benefits and reorganized its state-run retirement system to rein in runaway pension costs.
And although local plans were left out of that overhaul, the move has spurred cities and towns to address pension plans that have been neglected for decades.
Whether these new efforts will prove successful is still in doubt, as communities’ budget and legal challenges have not changed.
But the debates over solutions that have taken place at town and city council meetings this fall show communities are no longer blissfully unaware of the problem.
“We have inherited a problem no one has addressed in 20 years,” said Pawtucket Mayor Donald R. Grebien about his city’s police pension plan, which is $145 million short of the cash needed to cover obligations to current and future retirees. “How do we balance that? We will present four options that do no less than what the state does and one will be our preferred option.”
Perhaps the most significant development in the fight over local retirement benefits took place in Providence this spring, when city workers agreed to a package of pension changes that included suspending cost-of-living increases and requiring retirees over 65 years old to join Medicare.
The deal ended a court battle challenging the city’s authority to cut pension benefits and may have emboldened mayors elsewhere to push hard for similar changes to their local plans.
When the state overhaul was passed, Gov. Lincoln D. Chafee pushed to include provisions in the law that would give municipalities power to unilaterally cut benefits in a similar way the state did.
But most of those provisions were removed from the pension bill, and then again from the state budget.
The only part that did survive was a set of guidelines for cities and towns with distressed local plans, those less than 60 percent funded, to come up with recovery plans to stabilize them.
This week the plans were due and, while some communities didn’t make the deadline, most with drastically underfunded pension systems have now formulated recovery plans, even if they haven’t been agreed on, implemented or submitted. The state guidelines call for plans to be out of critical status in 20 years and fully funded in 30 years.
In Pawtucket, Grebien wouldn’t discuss details of what his first-choice recovery plan will look like, because it has yet to be presented to the City Council.
But he said it is likely to include a third consecutive annual property tax increase to boost the city’s contribution and overall will be slightly more aggressive in bolstering the plan than what the state is requiring.
In addition to bringing his plan to the City Council, Grebien is also entering negotiations with city employee unions on new contracts and is demanding pension concessions, he said.
The local Pawtucket pension plan, which has approximately 800 total enrollees, about half retired, is only 34 percent funded, but the city has at least been meeting annual contribution levels in recent years.
Others communities have struggled to make the same progress.
West Warwick’s pension plan is less than 20 percent funded and at the start of this fiscal year, after contributing only $1.1 million of the $8.7 million annual required contribution to the plan the previous year, had racked up a $115 million unfunded liability, according to a report for the town by Nyhart Actuary and Employee Benefits.
Earlier this year, Rosemary Booth Gallogly, director of the state department of revenue, warned West Warwick that its pension fund was on track to run out of money by 2017.
In response, Town Manager Michael L. Stampfler, in his first year on the job, has proposed a 4 percent tax increase, cuts in services and several options for scaling back benefits.
His plan has received resistance from town councilors and attempts to reach Stampfler for details of his recovery plan to the state were unsuccessful.
If West Warwick doesn’t increase its contribution and make changes to its pension plan, it could soon join Woonsocket and East Providence under the oversight of a state budget commission.
Those communities are not alone struggling to come to grips with pension plans that have been underfunded by local officials for decades.
Coventry has a police pension plan that is 11 percent funded, a nonuniform employee plan that is 25 percent funded and a school plan that is 33 percent funded and that few in town government knew existed until this year. Even though town taxpayers contribute to the plan, Town Manager Thomas Hoover said he thought the plan was a defined-contribution system and believes the town is not liable for any shortfalls.
As town and school lawyers wrestle with who is responsible for the plan, Hoover said it will not be included in the stabilization plan the town sends to the state for the other two plans.
Coventry’s pension-stabilization plan is expected to be at least 10 days late, because the Town Council has yet to approve it, Hoover said.
Hoover said he couldn’t discuss specifics of the pension-recovery plan other than that it would meet the annual required contribution in five years and the state timelines for getting out of critical status and full funding.
In both Coventry and West Warwick, town leaders appear to be finally facing the severity of local pension problems ignored in the past and at least outlining the steps needed to address them.
That doesn’t mean the stabilization plans submitted to the state by those two towns or others will ever be accepted by local residents or the public-sector workers who rely on them.
When communities have tried to break their pension promises they have made to workers in collective bargaining agreements in the past, courts have upheld union challenges to those changes.
In Cranston, Mayor Allan W. Fung, who represents the Rhode Island League of Cities and Towns on the state’s local pension study committee, has been among the most aggressive municipal leaders in trying to rein in benefits in underfunded plans.
Fung has proposed a plan that would freeze cost-of-living increases and cap future increases at 3 percent and prevent them from being compounded. It would reach fully funded status for the plan in 26 years and require no property tax increase next year, he said.
But Fung’s plan has yet to be approved by the Cranston City Council and potentially affected retirees have not responded to his request that they form a group for him to negotiate concessions with.
“Only two individual members have contacted me, so it has been a disappointing process,” Fung said. •

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