The City of Providence's landmark pension reform agreement with police, firefighters and retirees was completed today in Rhode Island Superior Court. The negotiated municipal pension settlement, which may be the first of its kind in the country, spares Providence from a high-stakes legal challenge that could have resulted in bankruptcy for the City.
Judge Sarah Taft-Carter, who has called Providence's pension agreement "a laudable example" for other cities and towns, today entered consent judgments finalizing reforms that cap all pensions at either 150 percent the state median income or less than the salary of the current employee in the position, saves Providence $18.5 million this fiscal year and reduces the City's unfunded pension liability by about $170 million.
Mayor Angel Taveras thanked Providence's retiree association, police and firefighters for coming to the table and working toward a solution to preserve the City's pension system and avert bankruptcy.
"This is an historic day for the City of Providence," Taveras said. "We have made tremendous progress together in just two years. We have saved Providence from collapse and built a solid fiscal foundation upon which we are ready to grow our City's economy. That progress has only been possible because of the collective efforts and shared sacrifice of so many. I am grateful to Providence's retirees, police officers, firefighters and municipal employees for making difficult sacrifices to help save our City. When we come together, there is nothing we cannot accomplish."
Details of the pension agreement:
- 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.
- COLA SUSPENSION: All COLAs suspended for 10 years. (Families of city employees killed in the line of duty will continue to receive annual COLA.) After 10 years, COLAs will only be reinstated for retirees who are under the pension cap, and COLAs will end when the cap is reached.
- ELIMINATION OF HIGH-END COLAs: All 5 and 6 percent compounded COLAs are permanently eliminated.
- 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.