NEW: Mayor and Council President Call for Changes to Pension Plan
Tuesday, November 01, 2011
Mayor Angel Taveras and Providence City Council President Michael Solomon testified today at the joint hearing of the General Assembly’s House and Senate finance committees. The two Providence leaders addressed the need to modify the pension reform legislation to include similar flexibilities for cities and towns who administer their own pension funds to those proposed by the Governor and the Treasurer for the state-run pension plans.
“Equitable, comprehensive pension reform should include locally administered pension funds,” said Mayor Taveras. “The City of Providence has taken bold measures to weather a fiscal storm of unprecedented strength. Unfortunately, the legislation before the General Assembly – while well-intentioned – will hurt our efforts to get Providence back on firm financial ground. The legislation gives the state the tools to fix their pension system yet these same tools are denied to locally administered pension plans.”
“The time is now to address the locally run plans,” said Council President Solomon. “Providence has an unsustainable pension system: an unfunded pension liability of $828M, an unfunded retiree healthcare liability of $1.5B and a total unfunded OPEB liability of $2.3 billion. We cannot wait to address these issues and we are confident that the Assembly will step up, once again, to assist the capital city.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTAt the hearing the Mayor and Council President discussed a three-point plan for empowering municipalities to address the challenges faced by locally administered pension funds:
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1. RELIEF. Time-limited cost of living adjustment (COLA) suspension
A municipality with a locally administered pension plan in critical status may suspend the annual COLA. For each year in which the annual COLA is suspended, the municipality will allocate no less than fifty percent (50%) of the annual savings attributable to the suspension, back into the locally administered pension plan fund. The suspension of the COLA will last no longer than 19 years. It may end prior to that time, if the municipality’s actuary determines in the annual actuarial valuation study that the pension plan’s funded percentage is greater than or equal to sixty-five percent (65%) and that reinstating the cost of living adjustment will not drop the plan’s funded percentage below sixty percent (60%), in which event the annual COLA will be reinstated for all members for the next plan year.
If Providence were given the ability to suspend COLA’s for a period of time, the ARC would decrease $16 million in FY12 and the unfunded liability would decrease by $239 million. The city’s pension plan would immediately jump from 34% funded to 42% funded and according to the city’s actuaries would be 70% funded by approximately 2022 – assuming the city chooses to reinvest 50% of the savings into the pension funds
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2. RESTRAINT. Mirroring state-funded benefit reforms in locally administered plans Upon the expiration of any current collective bargaining agreement, no municipal ordinance, collective bargaining agreement, or interest arbitration award will require employee retirement benefits that exceed the actuarial value of retirement benefits afforded under state law for those municipal employees who participate in the Municipal Employees Retirement System.
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3. RESOLVE. New employee transition into MERS
If a municipality’s locally administered pension plan’s funded percentage is determined by its actuary, and the state’s actuary, to be equal to or greater than one hundred percent (100%), then all employees hired after the date that fact is determined shall participate in the Municipal Employees Retirement System.
As currently drafted, the legislation pending before the General Assembly requires communities with pension plans in critical status to meet a certain minimum funding level based on a formula provided in the bill. Based on the formula, in FY12 Providence’s ARC would jump from $58.9 million to $72.4 million – a $13.5 million increase. That is equivalent to 4.2% of our tax levy or, put another way, taxes would have to be raised to the cap just to cover the pension increase.
Further, within 10 years, our ARC would increase from a projected $90 million to $111 million. And, over that 10 year stretch, the total additional cost to Providence taxpayers would be $170 million. For this reason, the Mayor and Council President will oppose the bill as written.
“The strength and success of our municipalities is inextricably linked to the strength and success of the state as a whole,” said Mayor Taveras. “Comprehensive statewide pension reform must be an integrated solution including cities and towns and our locally administered pension plans.”
Council President Solomon added, “Our ability to implement reforms at the local level will be hampered without state-level action that gives us the tools and flexibility needed to put our pension plans back on firm financial footing. As the General Assembly works to finalize the pension reform proposal, we ask that any reforms brought to the state and MERS pension systems also be applied to locally administered plans.”
