The commission is drafting a letter for critical status.
Joe Newton, from Gabriel Roeder Smith, is presenting a strategy for reforming municipal pensions. Newton says municipalities should get the numbers nailed down so they can negotiate realistic tradeoffs: do you want to retire earlier, or do you want more money, and so on. Retiree medical programs are a good example of this dynamic: If the benefits are unsustainable, they’re already in a situation that they don’t exist. One of them shows that a 5% return on investment funds the plan by 2060 (as opposed to 2036 at 7.5%). No mention at all about fairness to taxpayers (e.g., for amortization). An audience question on fairness: Can you distinguish what’s equitable versus what’s fair?
Newton: You’re probably correct that there may be a distinction. Different people can absorb different levels of change.” a.m. Newton: That creates cost problems with the existing fund, closing them out.
I see the town administrator of Tiverton, Jim Goncalo. Newton is not a fan of pension obligation bonds, but if it’s offset with real savings in the long term, then it might be reasonable, “if that’s what you’re giving up to get something from the other side.” a.m. “If you don’t follow this process, it’s very unlikely that the changes are going to hold up in court.” a.m. So, courts are looking for fairness in these issues. Courts are going to ask: did you conduct an open and fair process and listen to all interested parties? He used the word “sympathetic,” as in “looking sympathetic to a judge.” a.m. (I think he means to suggest arbitration.) Dingley clarifies the reason laws can change is that two parties didn’t agree to it.
There’s a distinction between “accrued benefit protection,” which is the amount that the employee has earned, and “contract right protection,” which guarantees benefits from day one. Beardsley is being explicit, now: What if a state statute requires mandatory arbitration that, 25 years ago, inserted COLAs into the plans?
Consequently, even well-funded plans in MERS will not receive COLAs. Raimondo: Point of pension is to retire with dignity? Raimondo: Much consensus worldwide for retirement with dignity: 70-80% of final salary. Raimondo: eye opening moment: “Wow, our system is actually designed to provide more in retirement than they earned working.” a.m. Guess it’s old-school Notes posted when things are back up and running. Newton is giving almost a pension reform 101 discussion…
“The ability to prevail, legally, is very much related to the process that you follow.” a.m. ” Is it appropriate to allocate 100% of your property tax increase cap to pensions? everything’s an individual decision to the employer; no cure-alls. Newton’s showing some old slides from the state pension reform. ” “You can’t do comprehensive pension reform unless you impact everyone.” She listed: Retired, vested, and new hires.
Newton’s response, essentially, is to consult an actuary and make some decisions. Most of the people in the room are financial managers for the towns. John Ward, Council Chairman from Woonsocket is here. Question: Some towns have a separately funded plan for COLAs; does that make a difference, legally? [Thanks, Boomers.] Subsequent generations may not be willing to pay for past services. In New England, the protections are more a matter of court decisions and Common Law. Discussing RI Judge Taft-Carter’s finding that a Providence union has an “implied contract,” Dingley says it wasn’t a terrible setback, because RI courts don’t like to issue summary judgment, which is what Taft-Carter was determining.
Warwick Mayor Scott Avedisian was here, but he left. Treasurer’s lawyer Mark Dingley answered that a judge see that as important, but one can argue that such funding is included in the payment for plans that don’t have a separate fund. A question from Cumberland (that hasn’t been discussed with the union yet): Does anybody every use pension obligation bonds to win give-backs from the unions? “Particularly in RI, taxpayers say they’re stretched to the limit.” On the other side, public employees planned their entire lives around benefits. AK, HI, LA MI, NM, and TX have constitutional provisions for accured protection. Dingley’s confident that the state will prevail when the case goes to trial, because all of the appropriate steps were taken beforehand. Most municipalities clearly have a contract, because it’s not through ordinance. It’s also typically going to be the case that courts will find that any municipal change in pensions will constitute “a substantial impairment” of the benefits offered. Dan Beardsley asked: What if provisions in the contract are cost drivers that were not an agreement between the two parties?
Raimondo: “This is territory.” Taft-Carter’s gauge was “reasonableness.” “That’s why we keep hammering home the process.
It’s all about making the case that a change was reasonable and it was necessary.” Therefore, regular negotiations trying to address a binding arbitration award would help to make the “reasonable” case. Question about whether Taft-Carter gave any guidance about what would be “reasonable.” Dingley: No, but there are questions about what evidence was considered, such as whether the city was warned in advance that it was at risk but kept engaging in negotiations. Dingley: For state pension reform, the treasurer analyzed a whole slew of options, trying to judge fairness.
Among municipal plans, there are a variety of methods of pension establishment…