December 19, 2014
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EDITORIAL
Pension adjustments

The “crazies,” as the administration has dubbed those who have adamantly argue the city is headed for a financial train wreck, have a good point – how can Warwick continue to meet all its operating costs and continue to pay both the health and retirement benefits of its retirees?

Indeed, the generosity and the negligence of prior administrations that failed to adequately fund one particular pension plan – Police/Fire I that currently has 53 active members and about 400 retirees – is costing the city a lot of money. To meet the unfunded liability of the now closed plan, the city adopted a 40-year plan in 1992 that has put taxpayers putting aside a larger and larger chunk of revenues each year for the next 23 years. The city has faithfully followed that plan and this year will set aside $14.3 million just to cover the pension costs of that single plan. Next year, the amount increases to $14.8 million, and by 2022 it will be more than $29 million.

This is not news. Those costs and the projection that the pension faces a $242 million unfunded liability was released by the city’s actuary in the spring of 2011. Actually, it wasn’t news then either, as prior reports cast a similar picture.

But things can change, as witnessed in the last two years.

In response to the market’s performance and what that did for pension investments, the state lowered its projected pension investment returns from 8 to 7.5 percent. The city did the same. The immediate impact was an increase in municipal and employee contributions to existing plans.

In the case of the Police/Fire I plan, contracts of acting members of the police and fire forces can have a dramatic effect on the ultimate cost of the plan. The fact that police and fire won’t receive a pay raise for the next three years means that retiree benefits won’t increase during that period either. The projected savings of this and prior lower-than-estimated pay increases amount to a whopping $20 million reduction in the taxpayers’ bill.

As both these situations illustrate, a slight change in the assumptions, like a ship changing course by only a couple of degrees, can make a tremendous difference by the end of the trip.

Ironically, Warwick’s diligence in recognizing its pension obligations and putting a plan in place will have taxpayers paying more than its sister communities that are now in financial crisis. The only way for them to avoid bankruptcy is to renege on promises made to active and former municipal employees. Warwick hasn’t taken that course, nor does it plan to. That says a lot for this community.

However, the way we’re headed, more and more dollars will go into pension payments rather than taxpayers’ pockets, or spending them on city services. It’s expensive to be responsible.

Former Councilman Robert Cushman pointed out, in a blog comment on this issue, that eliminating the link between current pay raises and benefit increases in the Police/Fire I plan would save tens of millions. He’s right; changes in the benefits – even slight changes – can alter the eventual payout.

Mayor Scott Avedisian is also right that the city should not be adjusting its outlook every time the markets take a dip or goes bullish run or the city negotiates a contract. Bi-annual assessments of its pension plans and adjustments on the basis of those findings are prudent.

Nonetheless, the administration should also focus on the long-range impact. Adjustments in the benefits package of the Police/Fire I plan may seem like sacrilege, but that could be the difference between a populace that can afford to pay for retiree benefits and no plan.

Is it so crazy to make some adjustments in the course now when the outcome could be so significant?


Comments
4 comments on this item

You must be CRAZY Mr. Howell to suggest such a thing.

Finally a unbiased editorial by Mr. Howell. The Avedisian administration must be furious.....the word "cut the pension increases" was rightfully injected into the discussion.

It's about time.

John I have to give you credit for finally broaching the subject that the retired employees need to be part of the pension reform equation.

I would hope that you agree and provide the necessary coverage in your paper of the fact that we need to discuss the cost of retired healthcare benefits (OPEB) which still are 100% paid for by taxpayers.

This is something that I did when I wrote a by-weekly column called "THE TAXPAYERS SPIN" for your paper. You however pulled my column because you characterized my factual accounts on this topic as “bashing” Mayor Avedisian.

Now I, as well as others, are refered to as "Crazies" by Mayor Avedisian. There's a lot of class being display by our MAYOR!

Suspending COLA payments isn’t on par with actually reducing retiree pension payments. What it is doing is cutting future increases so that the funds can become better funded and reduce the future amount of tax dollars needed. Isn’t this better then what occurred in Central Falls where actual benefit payments were cut because the city went broke?

Providence already enacted these changes. Cranston iand West Warwick are discussing the same with its retired employees.

Mayor Avedisian and most of the City Council believe this talk is equivalent to sacrilege. They are scared to death of even considering this.

It's interesting that this administration agrees that the city couldn't afford to make COLA payments for the next three years and took it out on the current employees by freezing their wages. This was a foolish agreement made by the Warwick union leaders when retired employees in Police II and Fire II are in fact receiving a 3% compounded raise over the next three years while the rank and file get no raises.

Didn’t we finished the year with a $2.2 million surplus?

If we can’t afford to pay COLA benefits for retired workers at 3% per year, tell me how, as was indicated in the presentation by the ACTUARIAL EXPERT, can the city taxpayers in this city can afford to make 3.75% compounded increase to the Police/Fire I pension plan over the next 20 years.

The fact that the Mayor refuses to perform the necessary analysis to determine if the numbers add up is telling. If he is so confident that these funding plans will work, prove it. Build an expanse model base don reasonable assumptions of growth for the next 5, 10 and 15 years to forecast what the necessary revenue stream will be required. Determine if the taxes can be raiased to support this spending.

Keep in mind if we produce a long range plan for consistent property tax increase MET LIFE won't be the only one leaving town.

I will be the first one lined up at the microphone in city hall proclaiming for all to hear that I was wrong if these numbers add up.

Thank you Mr. Howell.

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