Local communities late on submitting pension study plans

November 22, 2012

PROVIDENCE – Pawtucket and Cumberland are two of the six Rhode Island communities who missed the deadline to submit a plan to the state for shoring up their underfunded pension plans.
Pawtucket Mayor Donald Grebien and Cumberland Mayor Daniel McKee say they are working toward compiling the necessary information the state requires under the pension reform bill passed by the General Assembly in a special session one year ago. They acknowledge missing the Nov. 13 deadline, but say they are cooperating with state officials who are willing to be patient while the respective proposals are prepared.
The other delinquent communities are West Warwick, Johnston, Narragansett and North Providence. Susanne Greschner, chief of the Division of Municipal Finance, said she is keeping on top of the communities who haven’t submitted their plans. Technically, state aid could be withheld from the tardy communities, Greschner said, but such a penalty is not being considered at this time.
Grebien said Pawtucket has received volunteer help from former state auditor Ernest Almonte and the Pew Research Center and is now considering the options they proposed. Rather than pay for an actuary and consultant, Grebien said he expects to forward a plan to the City Council this week and that they will act on it the first week in December. He said he doesn’t anticipate the council rejecting the administration’s proposal, as has happened in some other communities.
“We notified the council that we weren’t going to meet the deadline because we want to do this right,” rather than quickly,” Grebien told The Call.
The mayor said Pawtucket is looking at four different options, each of which builds on the previous one.
One is to merge the city’s unfunded plan with the state’s Municipal
Employee’s Retirement Plan (MERS) or to independently meet MERS
requirements. The second is to meet the MERS requirements plus increase employees’ contribution by 3 percent. The third option is the MERS requirements plus 3 percent hike in employee contribution along with accelerating annual required contributions (ARC) to the fund by 3 percent,5 percent or more. Fourth would be all of the above plus additional benefit cuts, such as reducing or eliminating cost of living adjustments (COLA) or increasing the minimum retirement age.
Also on the table, Grebien said, is adjusting the estimated rate of return used to calculate the unfunded liability. He said the state uses 7.5 percent, but Pawtucket could adopt a more conservative number, such as 6, 6.5 or 7 percent.
“Every change I make that doesn’t come out of the (plan) would mean an increase in the cost to taxpayers, so we are balancing that out,” Grebien said, noting that changes in benefits may have to be negotiated with the city’s unions and retirees. “We’re trying to not raise taxes.”
Cumberland’s McKee said his town is in the process of getting actuarial information completed.
Part of the delay in preparing the pension report, McKee said, is that Cumberland is spending a lot of time addressing its other post-employment benefits – OPEB in actuarial jargon – such as health care for retirees. He said the town considers OPEB its priority right now, but, he added, “We don’t want to give the impression that we’re somehow not paying attention to the pension issue.”
He said the town has managed to cut its OPEB liability nearly in half, from $50 million to about $26 million.
One of the ways it has done that is to stop the School Department’s
practice of allowing retired teachers to buy into the health care plan at the same rate as working teachers. “They were collecting about $700,000 and it was costing about $1.2 million a year,” McKee said. Stopping that and moving the teachers to private insurance saves the town about a half million dollars right away from the school budget, but it also wipes out about $8 million in the long-range unfunded liability, he said.
Another step Cumberland has taken, the mayor said, is to move retired police officers 65 years of age and older into a Plan 65 plus Medicare.
“That substantially reduced our unfunded liability because that is a more controllable cost,” McKee said.
He said the town also set up an OPEB trust and has begun funding it with about $100,000 this year and it will increase as officials determine how much will be needed to fund the trust.
Contract negotiations are also part of the way Cumberland will look to reduce its unfunded pension liability, the mayor said. He noted that newer police officers have been informed that they will not be receiving the same pension benefits that their counterparts who have been on the job longer are expecting.
Part of the problem with making the pension report to the state, McKee said, is that town officials are negotiating with the unions now to modify pension benefits and “we don’t want to negotiate in public. We’ll include in our report to the state that we’re addressing these issues, but I think it is dangerous to lay out that plan while we are in negotiations.
Greschner said all of the pension funding improvement plans from the
various cities and towns are being posted as they come in on the
division’s website for the public to see. They are located at
http://www.muni-info.ri.gov/finances/FIPTable.php .