Pension Deal Will Save City Millions, Fully Fund Troubled Plan in 30 Years

"This is new beginning for Cranston — which, for over half a century, has had this albatross around its neck."

Those were the words of Cranston Mayor Allan W. Fung this afternoon as he announced a major deal between the city and current and retired union members who belong to the beleaguered city-run pension plan — a deal that will save the city tens of millions over the next three decades.

The deal, which has unanimous support from active union members, will use a combination of caps on cost of living increases (COLAs), COLA freezes and reduced COLAs over the next 30 years along with a reamortization of the $300-million unfunded liability to save the plan from collapse in the not-to-distant future. In the short term, the city will save $6.7 million in the next fiscal year alone, which means the $22 million the mayor is proposing to pay into the plan next year will meet the annual required contribution (ARC), or minimum payment needed to keep the plan funded and on a path towards fully funded status.

Previously, the city would have to have paid $28 million to meet the ARC — proof that the new deal will give taxpayers immediate relief, Fung said.

And the plan, its membership just 48 active and more than 450 retired Cranston police officers and firefighters, should be fully funded — something that seemed like a pipe dream even as recently as last year — within the next 30 years.

The plan, which has been closed to new members for years, should be out of critical status in the next 10- to 15-years.

Here's a breakdown of the agreement:

• COLAs are capped permanently at 3 percent compounded annually. Before, it was a minimum 3 percent compounded or it could "escalate greater based upon the raises of active employees," Fung said.
• Starting July 1, 2013, COLAs will be frozen every other year over a 10 year period. Current and future widows of police and fire retirees are excluded since their benefits are already reduced upon the death of their spouse.
• After the 10 year period, years eleven and twelve will have retirees seeing a reduced COLA of 1.5 percent compounded.
• After those two years, COLAs will be fixed at three percent.
• If the city gets more money from the state, it will be applied towards the unfunded liability.

A more detailed story and full video of the press conference, including comments from union representatives, will be posted soon.