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Updated: Thursday, 31 May 2012, 4:49 AM EDT
Published : Wednesday, 30 May 2012, 3:15 PM EDT
PROVIDENCE, R.I. (WPRI) - Providence Mayor Angel Taveras has struck a landmark deal with city workers and retirees that could save the capital from bankruptcy by scaling back pensions in the future, freezing cost-of-living adjustments now and restructuring health benefits, WPRI.com has learned.
Taveras confirmed the news shortly after 5 p.m.
"I hope that history will show this to be one of Providence’s finest hours: the moment when those with the greatest stake in Providence’s future came together to accomplish the painful and difficult work needed to pull Providence back from the brink," he said in a statement.
The tentative agreement would allow the city to cap all pensions, suspend cost-of-living adjustments (COLAs) for 11 years and eliminate 5 percent and 6 percent compounded COLAs for good while also moving retirees to Medicare, City Hall sources told WPRI.com on Wednesday. It would save an estimated $18.5 million in 2012-13 alone, they said.
The negotiated settlement between Taveras, public-safety retirees and Providence's three major unions - Local 1033, police, and fire - could head off years of court battles if all sides formally approve it in the coming weeks. That would put the capital on more solid legal ground than the state government, which is locked in a court fight over pension changes lawmakers made without negotiating.
The far-reaching deal comes 15 months after Taveras declared a "category 5" financial emergency in Providence and just weeks after the City Council enacted a similar package of pension changes unilaterally. If approved, the deal would be a major coup for the first-term Democrat and could set a national precedent.
No retiree would see a reduction in benefits under the proposal, so top-paid former Fire Chief Gilbert McLaughlin's tax-free pension would likely be frozen at his current rate of roughly $197,000 until he dies. His pension began at roughly $59,000 in 1991 but doubles every 12 years thanks to a compounded 6 percent COLA.
The proposed agreement between the Taveras administration, the three unions and the Providence Retired Police and Firefighters' Association came after Superior Court Judge Sarah Taft-Carter ordered the sides into mediation in a suit over Medicare changes enacted unilaterally last year.
Providence’s pension system was 32 percent funded as of June 30, 2011, with an unfunded liability of $903 million. It's been in rapidly declining health since 1989, when the Providence Retirement Board approved compounded annual pension COLAs of up to 6 percent for some police officers and firefighters.
New limits on COLAs
Active workers and retirees will be asked to approve a laundry list of benefit changes, which city officials estimate will reduce the unfunded pension liability by up to $170 million and reduce health care costs by about $40 million over the next 10 years.
The proposed agreement would suspend COLAs for all retirees until 2022-23, though in 2016-17 pensioners who earn less than $100,000 would receive a one-time stipend of $1,500 that would not be added to their base benefits. That group of retirees would also be eligible for a one-time stipend in 2019-20 if the city saves money from switching to a self-insured dental plan.
COLAs would be reinstated in 2022-23 but only for retirees whose pensions are worth the lower of either 150 percent of the state's median household income - which is about $82,000 currently - or, for police and fire retirees, the salary of an active worker at the same rank at which they retired.
"You're not going to have a retiree making more than someone that's in that job," a source told WPRI.com.
The retirees' COLAs would revert back to what they received before the suspension with the exception of those at the high end, whose COLAs would be cut to 3 percent compounded. COLAs will not be suspended for one group, the families of officers killed in the line of duty.
New benefit cap introduced
Another major change is the implementation of a cap on how large a pension benefit retirees can get. Going forward, pensions will max out based on the same equation as the COLA freeze. A pension will be capped at 150 percent of the state's median household income or the salary of an active police officer or fighter in the same rank at which they retired - whichever is lower.
City employees would be required to make contributions to the pension fund for as long as they earn credit toward a future benefit. Under current law, city workers can stop contributing to the pension fund after 25 years of work even if they continue working for the city - and thus increasing the size of their future pensions - after that.
A retiree's base pension benefit would be calculated based on the average of their four highest years of earnings, up from their a three-year average now but below the five-year average in the unilateral changes the council just enacted on its own.
Accidental disability pensions would continue to be worth 66.67 percent of a public-safety officer's salary. The council ordinance reduced accidental disability pensions to 50 percent.
Health care changes, too
The lifetime city-funded health care benefits retirees receive would also change for those age 65 and older, with those who are eligible moving to Medicare. The city will pay the retirees' Part B premiums and a penalty to the federal government, and will also pay for Medicare Part D prescription coverage.
The proposed agreement will now go to the City Council for approval. It will also be presented to members of Local 1033 and the police and fire unions for votes. Members began learning about the deal on Wednesday.
Since retirees are not legally represented by their former unions, they are expected to form a class - similar to the plaintiffs in a class action lawsuit - to vote on whether to approve the proposed changes, a source said. Those who decline to accept the deal would have the right to sue on their own, but their actions would not affect the broader settlement, the source said. The others will file friendly lawsuits in support of the deal.
Taveras thanked the leaders of the three unions - Donald Iannazzi of Local 1033, Taft Manzotti of the police union and Paul Doughty of the firefighters union - as well as Joe Penza, a lawyer for the public-safety retirees, for their help in crafting the deal. He also expressed gratitude to Governor Chafee, House Speaker Gordon Fox, Senate President M. Teresa Paiva Weed and retired Judge Mark Pfeiffer, Central Falls' former receiver, for assisting.
Robert Jarvis, president of the police and fire retirees' group, said he was frustrated that the news became public on Wednesday afternoon before its executive committee had a chance to brief his membership and before another mediation session scheduled for Friday.
"There was a settlement offered to us, but we haven’t signed off on it yet," Jarvis said, adding: "If I have enough persuasion and I can talk to enough people, then it’s a deal. If a lot of people revolt because they don’t understand, then they’re going to be a little upset."
Copyright WPRI 12
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