Taveras Administration, Retirees, Police and Firefighters Reach Historic Tentative Agreement on Pension Reform
Tentative settlement heads off high-stakes legal battle, saves Providence from looming bankruptcy
PROVIDENCE, RI – The administration of Providence Mayor Angel Taveras has reached a tentative agreement to reform the city’s pension and retirement benefits system. The tentative settlement gives Providence the savings it needs to avert bankruptcy in the coming years, puts the pension system on a sustainable path and protects the retirements of both current employees and retirees.
The tentative settlement with Providence’s retired employees and current police, firefighters and municipal laborers includes all the parties impacted by Providence’s recent pension reform legislation. The tentative agreement avoids further legal wrangling and enables the city to move eligible retirees onto Medicare. The agreement requires approval by retirees and the unions representing police, fire and City workers and approval from the City Council. Union leaders were scheduled to present the settlement agreement to membership today.
“This settlement saves the pension system for current workers, protects retirees from losing their pensions and puts Providence on firm financial ground so that we can move forward to create jobs, improve public education and make Providence a more livable and vibrant city,” said Mayor Taveras. “I hope that history will show this to be one of Providence’s finest hours: the moment when those with the greatest stake in Providence’s future came together to accomplish the painful and difficult work needed to pull Providence back from the brink. Today is not a day for celebration, but I am proud of what we have accomplished on behalf of the citizens of Providence and all of Rhode Island.”
The Agreement – Pensions:
- 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 (currently $82,353) 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 – Healthcare (only pertains to police, fire and retiree association):
- MEDICARE SETTLEMENT: Retirees 65 and older will move onto Medicare.
- PART B SUPPLEMENT AND MEDICARE PENALTY: The city will provide funding to cover Medicare’s Part B supplement and penalties, as had previously been committed.
- PART D PRESCRIPTION DRUG COVERAGE: The city will also provide funding to cover Medicare Part D prescription drug coverage.
- UNDER 65 HEALTH COVERAGE UNCHANGED: Health care for retirees under the age of 65 will not be changed.
The agreement, reached following three months of negotiations and a three-week legal mediation, ends a lawsuit filed in Rhode Island Superior Court by a group of retired police and firefighters that sought to block the city from moving retirees onto Medicare. Moving retirees to Medicare is expected to save Providence about $4.2 million in FY2013.
The agreement also heads off potential litigation over the pension reform ordinance passed by the Providence City Council and signed by Mayor Taveras on April 30. The tentative settlement will generate approximately $18.5 million of savings in FY13 – within $3 million of the anticipated savings included in the administration’s proposed FY13 budget. Officials expect that the pension reforms agreed to during mediation will reduce the City’s unfunded pension liability by as much as $170 million. The changes to Medicare will save approximately $40 million over the next 10 years.
Mayor Taveras was quick to give credit to labor leaders, retirees and city workers who played an important role to reach a settlement.
“Without the support of our partners from across the city and state, this tentative agreement would not have been possible. I am thankful to all the labor unions who have come back to the table once again in an effort to help the City secure their members’ retirements. I appreciate the leadership of Donald Iannazzi, Taft Manzotti and Paul Doughty and their members’ willingness to be a part of the sacrifice to strengthen our fiscal future. I am also thankful to our retirees, led by their able counsel Joe Penza, for sitting down at the table and working with the City to make the pension system more sustainable for future retirees,” said Mayor Taveras.
The Mayor also acknowledged the advocacy and support of state officials from across Providence and the state.
“Governor Chafee has been a faithful ally in our efforts to strengthen Providence’s fiscal ground. He has never stopped advocating for all of Rhode Island’s cities and towns and his leadership has given us the vital tools to put the Capital City back on a path for progress. Speaker Fox has been a stalwart support and stood by my side earlier this year when we warned of the challenges ahead. Senate President Paiva-Weed provided constant encouragement to continue negotiations when many thought an agreement was impossible,” said Mayor Taveras. “I am also thankful to Judge Pfeiffer for his time and guidance throughout this difficult negotiation.”
The city’s labor contracts will be amended and the current police and firefighter contracts extended one year to reflect the agreement.
Pension and Medicare Settlement Overview
Year 1 (FY2013)
|5 and 6 percent compounded yearly raises for retirees eliminated permanently.
COLAs suspended for 10 years. Families of city employees killed in the line of duty will continue to receive annual COLA.
City employees required to contribute to pension system as long they are earning credit toward a pension.*
Pension calculated based on four highest years of service.**
Accidental disability pension based on 66 2/3 percent of final salary.**
Future pensions capped at (a) 150 percent of Rhode Island median household income (currently at $82,353) (b) the salary of a current employee of the same rank at the time of retirement (public safety employees only), whichever is lower.
No changes to health care for retirees under age 65.
All Medicare-eligible retirees will move to Medicare. As previously committed, the City will provide funding to cover Part B supplement and penalties. In addition, City will provide funding to cover Part D prescription drug benefit. Agreement saves City $4.2 million in FY13.
Year 5 (FY2017)
|Retirees collecting less than $100,000 will receive a one-time $1,500 stipend.|
Year 8 (FY2020)
|Retirees collecting less than $100,000 MAY receive a one-time stipend of UP TO $1,500 if the City achieves savings as a result of a self-insured dental plan.|
Year 11 (FY2023)
|COLAs reinstated only for retirees collecting a pension that is (a) less than 150 percent of Rhode Island median household income (currently at $82,353)OR (b) less than the salary of a current employee of the same rank at the time of retirement (public safety employees only), whichever is lower.
Eligible retirees will receive the COLA they are entitled to under their contract not to exceed a 3 percent compounded increase.
*reform included in Providence Pension Protection Plan
**requires Council to amend Providence Pension Protection Plan
Next Steps: Required Actions for Settlement
|Active Police, active Fire and retirees vote to accept settlement.||Active Police, active Fire and retirees vote to accept settlement.|
Collective Bargaining Agreements
|Current collective bargaining agreements amended to reflect agreement. As part of settlement, Police and Fire CBAs will be extended 1 year. Wages and healthcare will not be included in the extension and will be renegotiated prior to the start of the extension. City Council must approve CBA amendments.||Current collective bargaining agreements amended to reflect agreement. As part of settlement, Police and Fire CBAs will be extended 1 year. Wages and healthcare will not be included in the extension and will be renegotiated prior to the start of the extension. City Council must approve CBA amendments.|
City Council Action
|City Council amends Providence Pension Protection Plan ordinances to reflect settlement.||No action required.|
|Active Police, Fire and Retirees file friendly suit and motion to certify retirees as a class.||Motion to certify retirees as a class granted byJudge Taft-Carter.|
|Outcome will likely be consent judgments with each party to reflect the settlement, modify the 1991 consent decree and prevent further legal action.||Active Police and Fire file friendly suits to enter into consent judgments with each party reflecting the settlement.|