Friday, November 28th, 2014

Linc-O-Meter

Reform municipal employee pension plans


Move aggressively on the municipal level to curb future pension costs, avoid protracted litigation, ensure employment stability, be fair to workers, older workers in particular, and honestly address all the critical issues facing the state with respect to pension benefits.


Updates

Chafee reforms die in committee

During his campaign for governor, Lincoln Chafee promised to reform Rhode Island"s municipal pension systems, many of which are severely underfunded.

Among other things, he pledged to reduce disability pensions for those not totally disabled, increase years of service and higher age requirements for retirement eligibility, and create a "hybrid" retirement plan combining defined benefits with a 401(k)-style plan for new employees.

In 2011, the General Assembly passed a bill, later signed by Chafee, that made major changes to the state pension system. It also included requirements that each city and town develop a realistic assessment of its looming pension problems by April 1, 2012, and, by Nov. 1, 2012, develop a plan for correcting each underfunded plan.  

In the 2012 legislative session, Chafee made a push to revise the municipal systems.

Specifically, his bills were:

* H8009, which would have given local city and town councils the authority to suspend cost-of-living increases for retirees if a pension plan was less than 60-percent funded, and limited future increases to the Consumer Price Index unless that plan was 100-percent funded.

* H8011, which called for reducing disability retirement pay for firefighters and police officers to as low as 50 percent if they were not permanently disabled. That would have applied to the Municipal Employee Retirement System (MERS) run by the state. Although the rule would have applied to both new and veteran workers, it would have applied only to cases filed after June 30, 2012.

* H8010, which was intended to address non-MERS plans. It would have prohibited any locally-administered pension plan from offering benefits that were more generous than the MERS program, and given local councils authority to scale back the benefits.

The three bills were heard by the House Finance Committee on April 4, 2012. On April 26, 2012, the committee voted to hold all of them for further study.

They never resurfaced, effectively killing the legislation until next year's session, when Chafee will have a chance to resubmit them or some other alternative.

"The governor remains committed to his municipal reform package," said his spokeswoman, Christine Hunsinger. "It didn't pass this year, which is a disappointment. He continues to believe these changes are necessary. The more time passes before these changes are made, the more cities and towns will teeter on the brink."

Because of the General Assembly's inaction and the fact that this year's session has ended, we rate this promise as Stalled.

Sources:

Interview, Christine Hunsinger, spokeswoman, Governor Chafee, June 25, 2012

RILIN.state.RI.US; Legislative Status Reports - H8009, H8010 and H8011, accessed June 25, 2012

After state pension reform, focus now on cities, towns

As mayor of Rhode Island's second-largest city from 1993 to 1999, Lincoln Chafee has had some experience with municipal pension plans and he knows that a lot of them are in trouble.

So one of the key elements of his campaign when he ran for governor was to promise to help fix those problems, which threaten to send some communities into bankruptcy. (Some of the plans that cover city and town workers are administered by the state, some by municipalities.)

"The real crisis is in our municipalities," Chafee said.

Some elements of his plan, highlighted on his campaign website, called for:

* "A reduction in disability pensions for those not totally disabled." Partial disability pensions would be reduced to a maximum of 50 percent of pay, compared with 66.7 percent for workers who are permanently unable to work.

* "Increased years of service and higher age requirements for retirement eligibility for both regular and public safety employees." Chafee proposed 29 years of service and age 59 (instead of 30 years with no age qualifier) as the standard of eligibility for a pension. That would bring the rules in line with state changes adopted in 2005. The standard would be 25 years and age 55 for public safety employees.

* "Substantially" changing the defined benefits for new employees by making the pension benefit "much lower."

* Changing to a "hybrid" pension system that combines defined benefits with a contribution plan for new employees and anyone with less than five years of service. (Workers with 5 to 10 years of service could opt into the hybrid plan if they wanted.) Workers not covered by Social Security would have to contribute more.

After he took office, Chafee pushed for municipal pension reform, but the General Assembly and General Treasurer Gina Raimondo said they wanted to focus on the state pension program instead. As a result, proposed changes to city and town plans were taken off the table, over Chafee's objections.

This year, Chafee has been actively promoting municipal pension reform as part of a larger legislative package designed to give cities and towns more control over their overall spending.

Chafee spokeswoman Christine Hunsinger said the governor's proposal includes three bills, all still in committee, that cover his municipal pension promises:

* H8009 gives local councils the authority to suspend cost-of-living increases for retirees if a pension plan is less than 60-percent funded and limits future increases to the Consumer Price Index unless that plan is 100-percent funded.

* H8011 reduces disability retirement pay for firefighters and police officers to as low as 50 percent if they are not permanently disabled. That applies to the Municipal Employee Retirement System (MERS) run by the state. Although the rule applies to both new and veteran workers, it would apply only to cases filed after June 30, 2012.

* H8010 addresses non-MERS plans, prohibiting any locally administered pension plan from offering benefits that are more generous than the MERS program, and giving local councils authority to scale back the benefits. So, for example, the 50-percent disability rule would apply to non-MERS employees as well.

It would also, in effect, require newer state employees to wait until their normal Social Security age to retire (and for police and fire, age 55 with 25 year of service); require most workers to contribute 5 percent of their salary toward their pensions (it's less for public safety employees and more if the community is not in Social Security); and make workers pay even more if they opt into a retirement system that offers cost-of-living increases. These changes would not affect "vested" employees, generally those on the job for more than 10 years.

"All the changes that were made for public safety employees, all the changes made for state employees would be the measure we use on the independent municipal plans," said Hunsinger. Individual cities and towns would have the freedom to decide, for example, how much of a retiree's payment would come from a defined benefit plan and how much might come from an employee contribution plan. Retirement age could differ from plan to plan as well.

However, the total amount of the payment is capped at the MERS ceiling, so if retirement age is different, something else in the plan must be adjusted to keep the cost constant.

Because none of the proposals have gone beyond committee hearings, we rate this promise as In The Works.

Sources:

The Providence Journal, "Chafee lobbies for municipal-relief bills," April 13, 2012, and "Point & counterpoint," April 27, 2012

Interview and e-mails, Christine Hunsinger, spokeswoman, Governor Chafee, May 7-9, 2012

Governor.RI.gov, "Municipal Pensions," undated, accessed May 4, 2012

RILIN.state.RI.US, "H8009: An Act Relating to Towns and Cities -- Critical Plan Empowerment Act - Municipal Pensions," accessed May 7, 2012

RILIN.state.RI.US, "H8011: An Act Relating to Towns and Cities -- Accidental Disability Allowance," accessed May 7, 2012

RILIN.state.RI.US, "H8010: An Act Relating to Towns and Cities," accessed May 7, 2012