Analysis: Bad math on city pensions

PROVIDENCE, R.I. (WPRI) - The president of Providence’s firefighters union is stretching the stats in his efforts to offset what I like to call the “Gillie” effect.

In recent interviews, Paul Doughty has tried to put gold-plated pensions like that of former Fire Chief Gilbert “Gillie” McLaughlin in perspective by pointing out the average annual pension in Providence is only “$25,000.”

By contrast, records show McLaughlin takes home that much roughly every six weeks.

The former chief – who retired in 1991 – now collects an annual tax-free accidental disability pension of roughly $197,000 a year, a massive increase over his starting pension of $59,000 21 years ago. The impressive raise is all thanks to a guaranteed 6 percent compounded cost-of-living adjustment (COLA).

Doughty is absolutely correct when he points out that most retirees make nowhere near that amount. He has criticized six-figure pensions for years and has proposed caps on retirement benefits. ( It now looks like he might get his wish.)

But here is what Doughty isn’t saying: the average retired firefighter’s pension is $48,142 a year – nearly double the average amount Doughty highlights in radio, print and television interviews. That's according to 2011 pension data the city provided to WPRI 12 in response to a public records request.

We found the average retired police officer makes $37,739 annually, while the average municipal worker – think non-public-safety workers at DPW or City Hall – gets a measly $16,452 a year. These retirees, however, also receive Social Security and another city-funded pension through their union, Local 1033; police and fire personnel in Providence are not eligible for Social Security.

Another important fact not mentioned by Doughty in those interviews: many retirees take out a lump sum when they retire in exchange for a smaller pension. It’s called “Option IV” and it has a dramatic effect on the pension averages that are in play here.

Here's how "Option IV" works, based on an actual example from city records: When Firefighter “X” retired in 2012, he opted to take $153,000 out of his pension account in a one-time cash payout, which is the amount of money he contributed to the pension fund from his paycheck over the years. That reduced his annual pension from $34,000 to $24,000.

Records show 1,475 of 3,148 retirees – nearly half of all Providence pensioners – used "Option IV." The ratio is even higher for public safety retirees, with 55 percent taking the lump sum cash payment upon retirement.

If "Option IV" wasn't available and those retirees had been forced to leave the money in their pension accounts, the average city pension would be much larger than the amounts Doughty cites in interviews.

As WPRI 12 has previously reported, 54 percent of retired Providence firefighters were collecting a tax-free accidental disability pension for being hurt on the job as of last year.

What hasn't been reported is that many of those disabled pensioners were also allowed to take back their own pension contributions as a lump sum cash payment upon retirement – without a reduction in the size of their pensions.

This was a perk that used to be given to those awarded a disability pension and it's no longer offered to those hurt on the job (though "Option IV" still is offered to regular pensioners). But it played a key role in draining the city pension fund, which has fallen from 64% funded to 32% funded since 1989.

The landmark settlement tentatively agreed to this week by Mayor Angel Taveras, city workers and retirees is mainly focused on public-safety pensions. Current and retired police and fire personnel will feel the proposed pension caps and COLA freezes more than other city workers, mainly because they make more.

Doughty deserves credit for always being accessible, even when he knows the interview isn’t going to be pleasant. But he’s not giving the complete picture when he cites the $25,000 average without context.

Tim White ( twhite@wpri.com ) is the Target 12 investigative reporter for WPRI 12 and Fox Providence. Follow him on Twitter: @white_tim