Providence Police Vote to Approve Negotiated Pension Settlement
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Providence Police Vote to Approve Negotiated Pension Settlement

Friday, December 14, 2012

Mayor Taveras thanks Police, Fire and Retirees for partnership to 'strengthen fiscal ground;'
Pension crisis and costly legal challenge in Rhode Island's capital city averted;
City in stronger fiscal position to protect progressive priorities and grow Providence economy.

Yesterday, Providence Police voted to approve the pension and retiree health benefit settlement reached in May with the City of Providence. All affected parties have voted to approve the agreement which protects the pension system for current and future retirees, saves Providence $18.5 million in FY13 and immediately reduces the unfunded liability of the pension by at least $170 million. The agreement also spares the City from costly court challenges aimed to block earlier reforms made through ordinance. Mayor Angel Taveras thanked Police, Firefighters and the retiree association for coming to the table and working toward a progressive and inclusive solution to preserve the City's pension system.

"I thank the Providence Police for their important vote to save our pension system and protect the hard-earned retirements of our current and future retirees. They join our Laborers, retirees and firefighters in the difficult work to position Providence on stronger fiscal ground," said Mayor Angel Taveras. "Through collaboration, we have pulled Rhode Island's capital city back from the brink of bankruptcy while sparing taxpayers the unnecessary expense of a long, costly legal challenge that threatened our future. Having reached agreement on these structural, necessary and progressive reforms, we can sharpen our focus on the important work to grow our economy, expand opportunity and cultivate the common good for every Providence family."

The negotiated settlement is among the first of its kind in the country. The approved reforms will permanently eliminate the five and six percent compounded, guaranteed annual raises (COLAs) that resulted in a small but significant number of retirees collecting over $100,000. Even while incumbent workers went several years without raises, a subset of retirees saw their benefits increase geometrically to a point that the top-earning retiree collected more in retirement than the City's highest-paid incumbent employee.

Details of the pension agreement follow:

  • COLA SUSPENSION: All COLAs suspended for 10 years. (Families of city employees killed in the line of duty will continue to receive annual COLA.)
  • ELIMINATION OF HIGH END COLAs: All 5 and 6 percent compounded COLAs are permanently eliminated.
  • PENSIONS CAPPED: In FY2023, COLAs will be reinstated only for retirees with pensions less than 150 percent the state median income OR less than the salary of an incumbent employee of the same rank as the retiree at the time of retirement (police and fire retirees only), whichever is lower.
  • FUTURE COLAs LIMITED: Retirees whose COLAs are reinstated in FY2023 will receive annual raises of 3 percent compounded or what is called for in their contract, whichever is less.
  • ONE-TIME STIPEND IN FY2017: In FY2017 (Year 5 of the agreement), retirees collecting pensions of less than $100,000 will receive a stipend of $1,500. This one-time payment will not change their future pension calculations.
  • CONTINGENT STIPEND IN FY2020: In FY2020 (Year 8 of the agreement), retirees collecting pensions of less than $100,000 may receive a separate one-time stipend of up to $1,500 if the city achieves savings through the creation of a self-insured dental plan. The potential payment would not change future pension calculations.
  • SUSTAINABLE REFORMS TO PENSION CALCULATIONS: Future pensions will be calculated based on the four highest years of service. The current system calculates pensions based on the highest three years.
  • CONTINUED PENSION CONTRIBUTIONS: Employees will be required to contribute to the pension system for as long as they earn credit toward a pension.
  • ACCIDENTAL DISABILITY: Accidental disability pension calculations will be based on 66 2/3 of the employee's final salary.

The agreement also reforms the City's retiree health benefits for retired police and fire employees and ends the lawsuit filed against the City challenging efforts to move retirees over 65 to Medicare. Under the terms of the approved settlement, retirees over 65 will move onto Medicare. The City will provide funding to cover Medicare's Part B supplement and any penalties retirees will be required to pay, as had been previously committed. The City will also provide funding to cover Medicare Part D prescription drug coverage. Retirees under the age of 65 will not be affected. These reforms alone will save the City $4 million in FY13 and more than $40 million over the next 10 years.

Since taking office in January 2011 and setting out on the difficult work to make sustainable fiscal reforms to position Providence for the future, the Taveras administration and Providence City Council have worked together and made the difficult decisions to eliminate a $110 million structural deficit.

"This is another important step towards fiscal sustainability for Providence," said Council President Michael A. Solomon. "I want to thank the men and women of Providence Police Department for coming to the table and again partnering in the shared sacrifice that has taken place over the past two years. Our officers put themselves in harm's way every day. In taking this vote they continue to show their commitment to our city."

The police vote to approve the negotiated settlement closes a chapter of pension reform in Providence and positions the City to sharpen its focus on the prospective goals to grow jobs, expand opportunity and improve City services Mayor Taveras outlined in his April 2012 budget address.

There are a number of procedural and technical steps that must be completed before April 1, 2013 to allow the reforms to take effect. The City Solicitor's office is working on those measures with counsel from the unions and retirees and Judge Taft-Carter. The Firefighters Union will also hold a procedural vote on the technical changes the police union agreed to. The Laborers Local 1033 supported the City's initial ordinance reforms and agreed to the settlement's reforms in May. However, because the agreement does not affect members or retirees from Local 1033 and retired Laborers over 65 already enroll in Medicare, they do not need to vote on the agreement.

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