Formula to cut pensions in half; union leader calls law 'illegal, immoral, unfair'
Published Nov. 23, 2011
By Sean Flynn/Daily News staff
A current Newport city employee who averages $40,000 a year in earnings after 30 years of service can count on a pension of $24,000 a year. A future employee with the same earnings and years of service will have a pension of $12,000 a year under the state pension overhaul signed into law last week.
"That's below the federal poverty level," said Frank Landry, president of Local 911 of the American Federation of Federal, State, County and Municipal Employees, Council 94, which represents 108 municipal employees in Newport.
"What they did dramatically hurts those who can least afford it," Landry said, referring to legislators in the General Assembly who approved the legislation on Thursday and Gov. Lincoln D. Chafee, who signed it on Friday.
Employees currently calculate their retirement pay by multiplying years of service by 2 percent to get the percentage of their salary they will collect as a pension. With 30 years of employment, they would receive 60 percent of their average salary for the last three years of employment. In Landry's example, 60 percent of $40,000 is $24,000.
Beginning July 1, 2012, employees will multiply years of service by 1 percent to arrive at the percentage. With 30 years of employment, they would receive 30 percent of their average salary for the five last years of employment. Averaging the last five years instead of the last three years brings additional savings to the pension system. In Landry's example, 30 percent of $40,000 is $12,000.

Big pensions not typical
When abuses of the state pension system are discussed, the pensions of judges and high-ranking state troopers often are cited, Landry said.
"My people don't take home those kinds of pensions," Landry said.
Landry was referring to the defined benefit pensions that public employees traditionally received. The new pension law also provides employees with a defined contribution, or 401(k)-style, retirement savings account. The money in these accounts will be invested in stocks and bonds, and the return will be dependent on the market.
"The accounts are subject to market fluctuations and designed to take the risk off the state and put it on the employees," Landry said. "A state-controlled firm will control these accounts of ours. We won't be able to touch them until we reach retirement age. We can't borrow against them or withdraw from them in emergencies like in the private sector."
Newport is paying a total of $3.51 million toward the state pension systems in the current fiscal year: $1.95 million for the teachers plan, the Employees' Retirement System of Rhode Island, and $1.56 million for the municipal employees plan, or Municipal Employees' Retirement System, said city Finance Director Laura Sitrin.
Without an overhaul of the state pension system, General Treasurer Gina M. Raimondo said Newport would have paid $2.5 million more toward state pensions the coming fiscal year.
Landry said he knows changes were needed, but the approach taken was "drastic and filled with inequities."

COLA suspension will hurt
Until now, retirees' pensions were increased 3 percent each year through automatic cost-of-living adjustments, which gave retirees significant pension increases over longer periods of time as the increases were compounded.
The new pension bill would suspend annual cost-of-living adjustments until 80 percent of the state pension's liability is funded, something expected to take about 19 years. Interim COLAs up to 4 percent, depending on how well investments do, could be awarded every five years until the fund achieves the goal. The COLAs would be applied only to the first $25,000 of a retiree's annual pension payment.
"My wife and I lost $100,000 last night if I live to be 85," Landry said the day after the vote. That is mainly through the loss of COLAs and the reduction in the defined pension benefits.
"There would be outrage around the nation if Congress took away COLAs for everyone on Social Security," he added.
As a water treatment plant operator, Landry said he is at the higher end of the pay scale among Local 911 employees, and he is not complaining. What he has earned as a pension benefit in his 27 years of service is secured, although he will be adding less to it as he continues to work under the new pension plan. He is concerned about the young employees who will not be able to retire until they reach the age of 67 and then face stark reductions in their defined benefit pensions.
"They won't be able to retire because they won't be able to afford it," he said. "Not only is this law illegal and an unfair labor practice, it is immoral."
The pension plans were part of an overall contract between the state and the employees depending on those payments, Landry said. A coalition of public-sector unions already has challenged pension benefit reductions passed last year in a lawsuit and have announced plans to go to the courts to have the newest reductions overturned.
"This will go all the way to the state Supreme Court," Landry said. "Even some of the supporters don't believe it will stand up in court."
Newport teachers are part of the Employees' Retirement System of Rhode Island, one of five pension funds the state administers and invests, along with plans for state employees, State Police, judges and municipal employees in MERS. Under the new law, the funds will be combined so that retirees all receive COLAs at the same time.
Christe Cykert is a science teacher at Rogers High School and is married to Jack Cykert, a retired teacher and past president of the Teachers Association of Newport, the local teachers union.
"We're extremely disappointed," she said of the law that will eventually raise the retirement age of teachers to 67, in addition to eliminating COLAs in coming years and reducing pensions.
"My husband may or may not get a raise for the rest of his life," she said.
David Koutsogiane, the current president of TAN, referred all questions to the National Education Association Rhode Island, which vigorously opposed the law and is part of the union coalition planning a legal challenge. Koutsogiane said he testified against the bill before the House Finance Committee.
The legislation creates a new rolling retirement age that runs from age 59 to 67, depending on the age and work history of each employee.
Christe Cykert credited state Senate President Teresa Paiva Weed, D-Newport, for the graduated age approach instead of going straight to a retirement age of 67, as well as the possibility of restoring COLAs every five years. Cykert was among a group of teachers who met with Weed as the law was being discussed.
"I wish more could have been done," Cykert said.
The original bill proposed by Raimondo and Chafee also called for municipal pension funds to be regulated by the legislation, including the suspension of COLAs. Newport firefighters and police have independent pension funds that are administered locally.

Police, fire pensions on 'watch list'
The state put the Newport firefighters pension funds on its "watch list" because just 37.6 percent of its total liability was funded as of July 1, 2010. The Newport police pension fund, at 56.4 percent, also is considered at risk, according to a September report by the state office of the auditor general.
Under the original pension-reform proposal, troubled local pension funds would have been merged with the state pension system.
"Oh my God, no way did we want that to happen," said David C. Hanos Jr., president of Local 1080 of the International Association of Firefighters, AFL-CIO. "Local autonomy is key. We can negotiate with our city. Whatever works for Newport and Newport firefighters can be worked out and we can have a strong, sustaining pension system. We got locked into arbitration for years, but the workers finally had a voice in the end result."
A state takeover of the local pension plan would eliminate that process, he said.
"For the state to swoop down and unilaterally change the plan is completely unfair," Hanos said.
He said the union "agreed to big, systemic changes" when a new three-year contract was negotiated earlier this year.
New hires now are not eligible to receive pensions or retiree health benefits until they reach the age of 58. Currently, firefighters can retire after 20 years of service, or after 25 years if they wish to continue receiving health care benefits.
Local firefighters will receive COLAs equal to the Northeast Urban Wage Earners Consumer Price Index, with a maximum of 3 percent and a minimum of 0.5 percent. Currently, retirees receive the same increase in their pensions that active employees receive in negotiated wage increases.
The firefighters also increased their contribution to the pension fund to 9 percent of their salary, up from 8 percent.
Upcoming actuarial reports should reflect an improvement in the status of the pension fund, but no one really knows until the reports come out, Hanos said.
Detective Sgt. Christopher J. Hayes, president of the Lodge No. 8, Fraternal Order of Police, said he is opposed to any enabling legislation that would allow the state to impose conditions on the local police pension fund which is 56.4 percent funded.
The funding ratio was higher until two years ago, when the city dropped its projected average annual earnings on invested assets from 8.25 percent to 7.5 percent, he said.
"Our pension is a product of collective bargaining," he said. "When we negotiate a contract, we are ready to discuss pension reform so the system remains healthy."
He said when the union agreed to cut police officer positions from 85 to 78, that reduction in the force was a long-term reduction of the burden on the police pension system.
Both Hayes and Hanos praised the city's Trust and Investment Commission for making good investments in recent years, so the pension fund assets did not take a big hit in spite of the market downturn.
"The city has done its due diligence," Hayes said. "The pension fund is adequately funded.
"To get lumped in with municipalities that did not do what they should have done is unfair," he added. "I don't agree with blanket legislation that would fold all local systems into the state system."

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