In a move that could be viewed as a mechanism to circumvent pension reform, the Cranston Fire and Police Unions are urging state and city officials to move their pension plans — that are currently part of the state’s system — back under city control.
Most of the current public safety employees in Cranston are part of the state MERS system (municipal employee retirement system). In 1995, the city of Cranston and the Police and Fire Unions agreed to move new employees into a state pension system. The 1995 move was made because the Cranston system was significantly underfunded. It gave the state, not the city, control of the pension system.
As part of the state system, the plan’s design was subject to state legislative decisions. Under city control, collective bargaining, and the contracts that result from it, would govern the pension system.
Moving Back to Cranston
Paul Valletta, the President of the Cranston Fire Fighters Union, Local 1363, said that the two unions (his and the police) approached Mayor Allan Fung about the possibility of moving the plans back under city control about a year ago.
“Mayor Fung said ‘put a plan together that’s less expensive than the one we’re paying for now and I’ll take a look at it’,” said Valletta. “We’ve been running actuarial studies for the better part of a year now.”
The vast majority of Cranston’s public safety retirees are part of the older pension system, which is woefully underfunded; while its current employees are part of the new system. It’s important to note that the new plan, however, would not be merged with the older, underfunded plan, but would become an entirely new plan.
Back in 2012, the bond rating agency Moody’s Investor Service downgraded the Cranston bond rating and the chief reason they cited was that the city’s police and fire pension system was only 17.8% funded.
Moving the plan would basically entail creating a new pension plan, with its own framework, which would make the plan completely outside the scope of the statewide pension reform passed in 2011.
Valletta’s Plan
The firefighters’ proposal, which would need state approval, would take $69 million dollars in contributions that the employees have made over the last two decades and place them under a new system that the city would control and manage. Valletta said that Fung insisted that the new pension proposal should use a 7.5 percent rate of return as an assumption for the investment income—the rate that was enacted on the statewide level.
Valletta said the unions are working on a plan that he believes would save the city $20 million in liabilities over the long-term by reducing some of the benefits paid out.
His plan would also adopt “blue collar” mortality tables. The state currently uses so-called “white collar” mortality tables to calculate the liabilities of the plan—a practice Valletta has vociferously opposed. White collar mortality tables assume people will live longer, because they worked in less hazardous professions, which increases pension plan liabilities.
“Stumbling Block”
Valletta cautioned that while there is a framework in mind, the proposal is still far from finalized, and therefore said he couldn’t release its specific details at this juncture.
A “stumbling block” so far, Valletta said, has been the fact that the unions believe they should be entitled to a portion of the interest that’s been accumulated on the contributions they’ve made over the years. Valletta said state level leaders didn’t react favorably to that notion.
The Fung administration declined comment on the issue. Reached on Friday morning, Robert Coupe, who serves as Fung’s Director of Administration, said that he didn’t feel comfortable commenting on the issue due to statewide pension lawsuit. Asked if the issue really had anything to do with the ongoing lawsuit, Coupe still declined comment.
“This and the lawsuit has everything to do with their pension plan, so I am not going to comment on that question,” said Coupe.
Cranston City Council President John Lanni said he hasn’t been briefed on the issue, but has heard the rumors. Lanni expressed concern with the idea of the city taking over control of the pension plans – and their significant liabilities – from the state.
“At first blush, no,” said Lanni, when asked if he supported the concept.
“With the cuts that have been made to the state system, I can understand why (the unions) would want to bring it back to the city system, but I’m not sure if that it makes sense for the city,” said Lanni.