Capitol avoids bankruptcy with new pension plan

After legal battle, retirees agree to reduction in health care and pension plans to keep Providence afloat

Staff Writer
Tuesday, January 29, 2013

City police officers voted to approve their union’s deal with the city Dec. 13, accepting pension and healthcare cuts in order to help the city stave off bankruptcy.

The deal saves the city $18.5 million in fiscal year 2013 and reduces the unfunded pension liability by $170 million, according to a city press release.  It also puts an end to legal action filed by various municipal unions, challenging a city council resolution that would have made more severe cuts to pensions and retiree health care benefits.

The retirees argued the city could not renege on its original contract with the unions, but ultimately agreed to the changes once the city limited the suspension of cost-of-living adjustments ­­— annual raises in pension pay-outs intended to keep pension payments growing in line with inflation — to 10 years, instead of the originally planned 24 years, said Joseph Penza, the attorney for the Providence Retired Police and Firefighters Association. The deal also permanently eliminates 5 and 6 percent compound cost-of-living adjustments and caps annual individual pension payments at 150 percent the state median income.

The agreement still moves all retirees over age 65 to Medicare, but under the terms of the new agreement the city will fund both the Part B and the Part D Medicare supplements, rather than only Part B — covering prescription medication in addition to medically necessary services and devices like operations, doctor visits and wheelchairs — to reduce the additional burden facing the retirees. The city agreed to the additional supplement in exchange for the dismissal of a lawsuit that could have prevented the city from moving retirees to Medicare.

“Through collaboration, we have pulled Rhode Island’s capitol city back from the brink of bankruptcy while sparing taxpayers the unnecessary expense of a long, costly legal challenge that threatened our future,” said Providence Mayor Angel Taveras, according to the same press release.

Retirees can still opt out of the settlement with the city and file individual cases against the state to demand their original pensions, Penza said. “You have the choice to go forward and take the risk, but get a worse plan than you had before,” he said.

The mayor and city council argued the cuts constituted “a compelling public interest,” saving the city from bankruptcy, Penza said. But the municipal unions filed a lawsuit, opposing the unilateral cuts.

The retirees considered several possible outcomes before settling, Penza said. If they won the case, the city would possibly have to declare bankruptcy and “in that case, (they) would not get compounding, and pensions would decrease by 25 percent,” he said. If they lost the case, the pension cuts would be more “draconian” than if they had settled, he added.

The police retirees of Providence confirmed their support of the new plan, as 80 percent approved the settlement, Penza said.

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