Pension proposal freezes COLAs
Mayor Joseph Polisena submitted his funding improvement plan to the state last Thursday for locally administered pensions. The evening before, a copy of the plan was emailed to the town’s Police and Fire unions. The administration’s proposal includes freezing cost of living adjustments (COLA) for 20 years for retirees.
The town has not yet discussed the plan formally with the unions. Local 1950 President Keith Calci was not ready to comment on the plan yesterday.
“It’s a fair plan,” Polisena said. “They have two choices – to accept it or to accept it.”
As it stands now, local pension plans have roughly five years left before funding runs out. If the proposal is rejected, Polisena said the pension funds would dry up, and the plans could potentially end up in receivership.
“I will pull the plug on the pension system if they don’t come to the table. I am not going to bankrupt this town for pensions,” he said.
The town’s proposal allows retirees to keep their benefits, but freezes COLAs for 20 years. For active police and firemen, they must work for a minimum of 25 years before retiring, and cannot collect until they are at least 55 years old.
Currently, pensions are calculated using the three best, or highest earning, years. Under the proposal, that would change to an average of the last 10 years of service.
Funding improvement plans like Polisena’s are required of municipalities with plans in critical status – those funded below 60 percent. Johnston qualifies, as the Police and Fire pension plans are both funded around 30 percent, but the town did not meet the Nov. 11 deadline given by the state.
Polisena said he was more concerned about getting the most accurate numbers possible, than meeting the deadline. The town spent $60,000 on an actuarial study of the plans by an independent firm, Siegel, which he says will back up the town’s assertions if the proposal is challenged by the unions. The money to pay for the study came out of the General Fund.
At his State of the Town address yesterday, Polisena said the town would ideally like to avoid arbitration.
“It’s very difficult, in this state, winning in court. We’ve gotten beat time after time,” he said.
The town’s unfunded pension liability is roughly $110 million – more than the $96 million they initially projected. What is worse is the unfunded liability for Other Post Employment Benefits (OPEB), which stands at $187 million. The town was able to bring that OPEB liability down from $229 million by switching from Blue Cross to Medicare, but the amount is still more than the town’s overall budget for a year.
The state requires plans to bring municipalities up to that 60 percent funding threshold within 20 years. Johnston doesn’t have 20 years, unless something changes.
To pay the unfunded pension liability now, Polisena says it would take $32,000 per household.
“Cooler heads have to prevail,” he said.
The proposal has been given the green light from the town’s Pension Review Board, as well as the Town Council. The unions now have 30 days to consider the proposal and come back with an answer, begin negotiations or offer an alternative of their own.
“I’m not going to be here in the summertime talking about what we’re going to do; it’s got to get done. We have to fix it,” Polisena said. “I’m hoping that [the unions] see that this is the answer.”