CalPERS and CalSTRS, combined, have hundreds of billions in unfunded liabilities. The UC system has an unfunded liability of over $21 billion—even the Los Angeles Department of Water and Power has under funded liabilities of over $11 billion.
Some say regardless of the ability to pay, government must pay the pensions—not so. Central Falls Rhode Island cut pensions to 55%. A county in Alabama cut almost 100%. Now another city in Rhode island is about to make a cut in the cost of living increase—hoping the remaining pensioners die off before the pension fund runs out of money. They need to go in the next eight years.
“Officials in Woonsocket on Monday asked the cash-strapped city’s retirees to agree to give up annual increases in their city-managed pensions and move to Medicare or else risk pushing the city into bankruptcy.
A city pension plan created in 1960, which covers police hired through 1980 and firefighters hired through 1985, is hemorrhaging cash as it pays $8.4 million in benefits a year but gets only $1 million in new city and employee deposits. The pension plan is on track to run out of money by 2021, the state projects.”
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Cash-strapped city asks for benefit cuts
WOONSOCKET, R.I. (WPRI) – Officials in Woonsocket on Monday asked the cash-strapped city’s retirees to agree to give up annual increases in their city-managed pensions and move to Medicare or else risk pushing the city into bankruptcy.
A city pension plan created in 1960, which covers police hired through 1980 and firefighters hired through 1985, is hemorrhaging cash as it pays $8.4 million in benefits a year but gets only $1 million in new city and employee deposits. The pension plan is on track to run out of money by 2021, the state projects.
Rosemary Booth Gallogly, the Chafee administration’s revenue director, told more than 200 of Woonsocket’s 789 retirees that the proposed changes are intended to avoid a repeat of what occurred in Central Falls, where retirees’ benefits were cut by up to 55% after the pension fund ran out of money and the city filed for bankruptcy.
- “By the time the state got in there, there was pretty much no money left in the pension fund,” Gallogly said during a meeting at Woonsocket High School. “Those discussions were horrible. Really horrible.”
The average retiree in the police-fire plan is 71 years old and gets a monthly pension of $2,723, according to the state. Under the proposal, the retiree would continue to receive that amount but going forward would not get cost-of-living increases, which would total about $980 next year.
While Woonsocket’s proposed pension changes will only affect its police and fire retirees, officials are asking other eligible retirees to move to Medicare by March 31 – with the city paying the penalty for enrolling late – or to pay more for their health insurance if they’re too young for the federal program. The city offers 14 different health plans.
Retirees listened and asked questions respectfully during the meeting, but also expressed frustration that Woonsocket hadn’t put enough money aside to fund their pension benefits at the time that they were promised. Gallogly asked them to organize among themselves to negotiate with city officials, citing similar approaches in Providence and West Warwick.
Woonsocket’s troubled police-fire pension plan allowed employees to retire at any age after 20 years of work and receive a benefit worth up to 75% of their salaries. “While the benefits are unaffordable, we don’t blame anybody for how we got there,” Gallogly said.
Woonsocket Mayor Leo Fontaine said he thought the meeting went well. “A lot of retirees are looking at what’s happened in other communities as a reference point,” he said. “Central Falls is very ripe in people’s minds.” The budget commission wants the retirees to vote and have the changes in place by July 1.
Last year Gallogly appointed a budget commission to oversee Woonsocket’s finances as the city of 41,186 struggles with Rhode Island’s second-highest debt burden and municipal deficits projected to total $92 million by 2017. The city’s annual budget was $126 million last year.
Gallogly said she hopes the budget commission’s deficit-reduction plan will succeed in getting wide support, but if it doesn’t she could appoint a receiver who would have the power to put Woonsocket into bankruptcy, as happened in Central Falls. The commission’s plan also calls for tax increases and concessions from workers.
Most of Woonsocket’s employees and retirees are enrolled in the state-run pension system, which is in healthier shape. But the police-fire pension plan – which covers 256 police officers and firefighters, only two of whom are still working – is run by the city and has a $42.6 million shortfall, making its funded level just 54%.
That plan’s pension payments were covered on a pay-as-you-go basis until 2002, when the city acknowledged its long-term liability for the first time and closed the shortfall by selling $90 million in pension obligation bonds.
But the market crash destroyed the value of the money Woonsocket had borrowed: the pension fund’s assets plunged from $94 million in July 2007 to $53 million last July.
In 2009, city officials were told they needed to start putting millions more of taxpayer dollars into the pension fund in addition to paying back the $90 million they borrowed in 2002.
“I don’t believe we can solve the problem through borrowing,” Gallogly told the retirees on Monday in response to questions about whether that was an option. “The city has already done that.”
Woonsocket’s actuary projects the city should contribute $3.6 million to the police-fire pension fund during the 2012-13 fiscal year. Gallogly said the budget commission’s proposal also calls for larger pension contributions from the city.