Pension Threats Hit Providence

August 4, 2006 – A recently unveiled plan to eliminate defined benefit pension plans in favor of a defined contribution pension plan for city of Providence, Rhode Island employees – including fire fighters – is one of many threatening fire fighters across the United States.

Because defined contribution pension plans – often 401(k) plans – require employees to contribute a defined amount and bear the risk of investment results, they do not guarantee retirement dollars for employees. Furthermore, defined contribution plans do not include disability provisions that essential for public safety workers. Fire fighters who retire early under a defined contribution plan would suffer significant financial penalties.

“For the last 50 years, the IAFF has fought to secure retirement benefits for fire fighters and families,” says IAFF General President Harold Schaitberger. “We can not allow local and state governments to undermine the benefits that we have worked so hard to protect. The IAFF will not back down from the fight to ensure fire fighter retirement dollars are secured.”

In Providence, the city pension program has been under funded since the 1980s. As a solution, Mayor David Cicilline is proposing to enroll all new city employees into a defined contribution plan beginning in July 2007. At City Council meeting held August 3, Local 799 was successful in stopping a vote at an August 3 City Council meeting. The Council agreed to submit the plan to a Joint Committee on Finance and Ordinance for review. In the meantime, Local 799 will lobby the Committee to alter the plan to provide an adequate pension for its members.

Under the mayor’s proposal, the minimum retirement age for municipal employees would increase from 55 to 65. Fire fighters will be eligible to retire and receive 50 percent of their pension after 20 years of service; however – as with many of these defined contribution plans – the minimum age would jump from 55 to 60 for those who retire before reaching the 20-year mark.

The proposal calls for a cap on how much disabled retirees can earn in addition to their pension. Any income a retiree makes above the cap will be subtracted from their pension payment. Retirees with disabilities will also be required to submit documentation annually from a doctor certifying they are still disabled.

“In Rhode Island, our benefits are based on comparables,” says Paul Doughty, president of Providence Local 799. “If passed, this proposal could be the domino that starts eliminating defined benefit pension plans across the state.”

Similarly, in New Jersey, the $70 billion New Jersey Public Employees’ Retirement System (PERS) is under funded by at least $25 billion. The debt dates back to 1997 when then-Governor Christie Todd Whitman floated $2.8 billion in 30-year bonds to pay off the state’s under funded pension liability. The state planned to use the proceeds to earn more in the then-hot stock market than the 7.64 percent it had to pay out in interest on the bonds.

The plan worked until the stock market tanked. Now, the state not only owes the principal and interest on the bonds, but also faces big funding payments into the pension system.

In May, acting New Jersey Governor Richard Cody named an eight-member Benefits Review Task Force to make recommendations for dealing with the escalating costs of the state’s benefit programs. Options could include converting new employees to a defined contribution plan.

In Alaska, legislators proposed legislation in 2005 to put all state and local government hires as of July 2006 into a defined contribution plan. Despite hard campaigning by the Professional Fire Fighters of Alaska (PFFA) and other municipal employees, the law passed.

Legislators reasoned that it was necessary to eliminate a $5.7 billion funding shortfall in the Alaska Public Employees Retirement System (PERS) and the Teachers’ Retirement System (TRS).

PFFA members continue to work to reverse Governor Frank Murkowski’s elimination of a retirement system in place for more than 30 years. The state accumulated a huge debt because of poor investment returns and the pre-funding of its post-employment health care through the pension plan. With the rising cost of health care, this liability has grown to large proportions.

As demonstrated in California, the fight can be won. Last year, California Governor Arnold Schwarzenegger held a special election that included ballot initiatives -- Propositions 75 and 76 that would have paved the way for a renewed assault on retirement security and given the governor power to cut local government funding, suspend pension contributions and even eliminate collective bargaining.

The California Professional Firefighters (CPF) and IAFF locals across the state launched an aggressive campaign against Governor Schwarzenegger that included television advertising, public rallies, political action campaigns and other tactics to get their message out and resoundingly defeat these ballot initiatives.