Providence, Rhode Island Mayor David N. Cicilline announced a plan to close the city’s pension system to new workers and move them into a defined contribution plan, such as the 401(k) accounts offered at many private companies.
If approved, Providence would be the first Rhode Island municipality to close its pension system in favor of a defined contribution system. Current retirees and employees would still receive their pension benefits.
Cicilline called it a bold and fair move that is desperately needed.
“By adopting these measures and continuing to deal with the debt that has accrued in the past, we can end the pension crisis in the city of Providence,” Cicilline said [July 27] at a news conference, flanked by City Councilman John J. Igliozzi and several members of the mayor’s Pension Review Commission.
Large Unfunded Liability
The city’s retirement system has a $616 million unfunded liability, which represents the money needed to pay benefits to current and future retirees over the next several decades.
Though union leaders sat on the Pension Review Commission, none attended [the] announcement. The head of the municipal workers union said he agrees with most of the recommendations, while the president of the firefighters union accused the administration of attempting to legislate benefits that should be negotiated.
Teachers are not affected by the proposal because they belong to the state pension system.
Changes in Retirement Age
The proposed pension reform would:
- Enroll new employees into a defined contribution plan beginning July 2007.
- Change retirement requirements for 800 employees who have worked for the city for less than five years. The minimum retirement age for municipal employees would increase from 55 to 65. Police and firefighters would still be able to retire and receive 50 percent of their pension after 20 years of service, but for those who retire before reaching the 20-year mark, the minimum age would jump from 55 to 60.
- Increase penalties for workers who retire early.
- Cap pensions of disabled retirees who earn other income. Any income above that cap would be subtracted from their pension payment. Only a few Rhode Island communities cap disability pensions, and even fewer enforce it.
- Require retirees with disability pensions to annually submit documentation from a doctor certifying they are still disabled.
- Create strict deadlines that would require the Providence Retirement Board to rule on disability pensions in a timely fashion.
According to the city’s pension analysts, the reform measures would save the city $120 million over 28 years.
Igliozzi called the plan a blueprint for financial stability.
“It will still provide the kind of benefit the hardworking and dedicated employees deserve, but in a way that is fair to its employees as well as the taxpayers,” Igliozzi said.
The city still needs to take several steps to address the unfunded pension liability. City officials intend to pursue a pension obligation bond, which requires approval from the General Assembly and City Council. But the first step is closing the city’s pension system.
Igliozzi asked Cicilline to accompany him to the city clerk’s office, where they filed the proposed ordinance.
Despite the show of unity, other city councilors were left out. Council President John J. Lombardi said he didn’t even receive a copy of the reform package, and noted that Councilwoman Rita M. Williams and City Auditor James J. Lombardi III–no relation to the council president–were not invited to the media event although both had served on the commission.
Donald Iannazzi, business manager of Local 1033 Laborers’ International Union, and police Sgt. Robert Paniccia, president of the police union, both served on the commission and support the defined contribution plan.
“I think it’s the wave of the future,” Iannazzi said. “I think public employers need to get out of the pension business.”
Iannazzi and Paniccia said that the pension system was too easily abused. Previous administrations, for example, borrowed money from it, made poor investments, and underfunded it.
“The [commission] did a yeoman’s task of dissecting the benefits we have and securing the fund into the future years,” Iannazzi said. “We looked at how we can make things better and assure that there is a system 30 years from now, and I think we’ve done that.”
Nonetheless, they believe the pension changes must be negotiated in collective bargaining.
Paul A. Doughty, president of the firefighters union, said he does not support a defined contribution plan. He said arbitrators have ruled in favor of the firefighters union in several recent pension benefit decisions, and now the mayor is trying an end-run.
“When he couldn’t win in that forum, he’s trying to win in this forum, in the court of public opinion,” said Doughty. “The proper forum for this is arbitration and negotiation.”
All three union leaders objected to changing the retirement rules for current employees. They said increasing minimum age requirements and placing heavier penalties for retiring early is like changing the rules in the middle of the game.
As for negotiations, John C. Simmons, the city’s director of administration and chief negotiator, said, “We believe there are some parts that might be subject to negotiations and others are not.”
When asked which pieces are negotiable, Simmons repeated his previous remark.
Cathleen F. Crowley ([email protected]) is a staff writer at The Providence Journal newspaper in Providence, Rhode Island. This article originally appeared in the July 28 edition of The Providence Journal. Reprinted by permission. See http://www.projo.com.