Prov pensions hit by 'comedy of errors'

PROVIDENCE, R.I. (WPRI) - Providence's pension system has been around for 88 years, but the bulk of its huge funding shortfall stems from "a comedy of errors" that took place between 1983 and the mid-1990s, a former city official said Monday.

The General Assembly created and controlled Providence's pension system from its creation in 1923 until the city got home rule in 1983. But the decade that followed saw a series of mistakes that have now thrown it into financial jeopardy, former City Solicitor Charles Mansolillo told a special City Council subcommittee studying the problem.

"I lived it for my entire term as solicitor, dealing with this problem," said Mansolillo, a close confidante of former Mayor Buddy Cianci who was solicitor from 1992 to 2002 after working for Gov. Ed DiPrete and serving on the City Council and in the General Assembly.

Providence's locally run pension system is one of the most troubled in Rhode Island, with a 34% funded level and an $829 million gap between its promised benefits and its assets, despite an actuarial forecast that the fund will earn a rosy 8.5% return going forward. By contrast, the state system was 48% funded using a 7.5% return forecast prior to passage of the overhaul Governor Chafee signed Nov. 18.

Providence's pension system was largely untouched by the new pension law after Treasurer Gina Raimondo and Senate President M. Teresa Paiva Weed pushed to leave out changes to the 36 municipal pension plans that aren't in the state-managed Municipal Employees Retirement System (MERS).

Iannazzi sees MERS solution

Providence has enacted "a lot of reforms in terms of dealing with some of the real dragons out there," including tax-free accidental disability pensions, Mansolillo said. But generous cost-of-living adjustments (COLAs) are "a big problem that has to be dealt with - no two ways about it," he said.

The subcommittee should concern itself less with how the pension problem developed and more with how to solve it, said Donald Iannazzi, business manager for Local 1033 of the Laborers’ International Union of North America, the city's largest union.

"Part of the solution may be the mere recognition that we don't do pensions well and we may want to cede that authority," Iannazzi said. He later indicated his comment was meant to suggest the city should join the state-run MERS pension system.

Whatever the answer, the council should decide on a pension fix by the start of the next fiscal year on July 1, Iannazzi said, adding: "It needs to happen now."

Board stacked after 1983

The focus at Monday's hearing was mostly on the past - particularly how the city wound up boosting the pension checks of many retirees with 6% and 5% COLAs, compounded annually. "It was just a comedy of errors of misreading decisions by the court," Mansolillo said.

The city's pension system has "two histories: the pre-'83 history and the post-'83 history," he said.

The Providence Retirement Board that existed when home rule began in 1983 was stacked with more union and retiree representatives than management appointees, Mansolillo said. That wasn't a problem until a few years later, when the employee representatives determined they had the power to award COLAs and make other policy changes.

Mansolillo served on the commission that drafted Providence's home rule charter in 1979-1980 and said its members had agreed with retirees that it would be beneficial for them to have Retirement Board representation. "As it ended up turning out, that ended up exacerbating a lot of the subsequent problems," and the relationship between the board and the city soured "radically" as the 1980s wore on, he said.

Cianci's decree forces payments

The key vote came in December 1989, when the board voted to award the compounded COLAs. Although they were expensive - a 6% compounded COLA doubles a pension's value every 13 years - the city's actuary said it was affordable at the time, according to Iannazzi.

Two years later, in December 1991, Cianci signed a consent decree drafted by Iannazzi that agreed to pay the COLAs in order to end protracted litigation over them.

Just five months later, the Rhode Island Supreme Court ruled that the Retirement Board had been wrong - it never had the power to award COLAs. But the consent decree bound the city to pay them, though courts later narrowed its scope to only affect those who'd already retired when it was signed.

The board had also granted a huge number of accidental disability pensions in the late 1980s and early 1990s, Mansolillo said.

Lawmakers sweetened benefits

Separately, Iannazzi said former Senate Majority Leader John Hawkins, a one-time Providence firefighter, passed legislation awarding COLAs to city public safety personnel starting in 1977. The General Assembly continued to alter Providence's pensions despite home rule until the 1990s, when Mansolillo told city officials they controlled it, not state lawmakers.

"Effectively, it wasn't understood until maybe another decade later that no longer could the legislature be amending and changing [Providence's] retirement act," he said.

The committee members asked Mansolillo a number of questions about the financial health of the pension system during his years in city government, but he largely demurred on them except to say "it was never in a critical situation."

Providence failed to make its full required contribution to the pension fund in 1981, according to both Mansolillo and Iannazzi, and the latter man said the city also skipped a full payment in 1991 but instead provided a promissory note saying it would pay the amount back plus interest. The city reamortized its system in 2009 after saying it wouldn't do so again, he said after the meeting.

Salvatore says changes needed

Some changes have already been made to city pensions in recent years, including a 2006 restructuring of the Retirement Board that made employee representatives a minority and others that reduce benefits for those who retire early and require more oversight of disability awards.

City Councilman David Salvatore, who is chairing the special pension panel, said the point of learning the history isn't to place blame but rather to understand how the city got into its pension morass so similar problems can be avoided this time.

"We have a fiduciary duty as a committee, as a City Council, our Retirement Board, our Investment Commission, to make sure that ... we're delivering pension benefits after retirement but also securing a pension system for current employees," he said.

Chafee has said he will propose legislation when the General Assembly returns in January that will provide assistance to Providence and the other communities with one of the 36 locally run pension plans.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi