2014-06-05 / Front Page

Pension, Health Revamp?

By Tom Walsh

The City Council will begin to publicly dissect proposals of the Finance Review Committee and the Charter Review Commission at a public workshop on Thursday, June 12 at 6:30 p.m. in the Program Room at the Newport Public Library.

Among the finance panel’s recommendations in the report that it presented to the city on May 28 are the adoption of a “hybrid defined benefit/defined contribution” plan for employee pensions and a temporary suspension of retiree cost-ofliving adjustments.

The committee said state pension provisions “currently under consideration” include several “forward looking changes designed to avoid costs escalating beyond the means of the state to stabilize pension plans by reducing the danger of underfunded plans collapsing and to reduce current government outlays at the state level and the municipal level."

“Until the status of pension plan provisions is settled at the state level in Rhode Island, with agreement between unions and the state and the resolution of legal challenges, the city should not commit to pension plan benefit extensions of more than one year unless agreed upon provisions include a hybrid defined benefit/defined contribution plan and a temporary suspension of retiree cost-of-living adjustments,” the panel declared.

The report maintained that if such provisions become part of the final settlement at the state level, then “that will establish a precedent that can be used in negotiations of municipal-level pension plans.”

Asked about the finance panel’s recommendations, Mayor Henry F. Winthrop said he would not comment until the public workshop. “At that point we’ll have a better understanding of the proposals rather than trying to individually interpret the report,” Winthrop said. “Once we have a good understanding of the recommendations, then we will have to vet them before taking action.”

The committee declared in its report that incorporating these ideas in new agreements “will reduce the plans’ unfunded liabilities by millions of dollars and thereby reduce the city’s annual amortization costs aimed at fully funding its plans by hundreds of thousands of dollars.” The report continued to say that because of “grandfathering” provisions expected to be included with such changes, the city’s normal annual contribution towards its pension plans “will not change in the short run, but it can be expected to be reduced in the long run as grandfathered employees leave or retire and are replaced by new employees to whom changed provisions apply fully.”

The report concluded that “Those charged with negotiating employee contract changes should be instructed to seek such provisions now. If no agreement is reached, they should insist on short-term contract extensions until the question is settled at the state level.”

The finance committee’s report also addressed employee health benefits. “Employee contributions toward the cost of their health benefits should be a percentage of cost rather than a percentage of salary or of pension benefit.”

The report maintained that using salary or pension benefits to determine employee health insurance contributions “removes an important financial incentive for employees to control their medical expenditures. It encourages employees to seek unnecessary treatments, knowing that the financial cost to them will be minimal.”

Conversely, the panel declared, “Having their contribution linked to the cost of coverage incents employees to seek treatments judiciously, knowing that over-usage will translate to higher coverage costs and, in turn, a higher required contribution level.”

The report said Newport employees might be offered “other incentives to live a healthier life— eating nutritious meals, exercising regularly, limiting their intake of unhealthy products and avoiding unnecessary risks to their health and well-being—by offering nominal rewards.”

Healthier employees “translate to savings for the city in terms of lower contributions to the city’s share of health-benefit costs and less use of sick leave requiring overtime expenditures to cover the workload,” the report concluded.

The committee said that as each employee contract comes up for renewal, this change should be negotiated. “The goal in negotiating the change should not be to achieve any immediate savings to the city. Rather, at the time of changeover, the contribution total received in dollars from the existing method should closely approximate that provided by the new method.” Improved coverage costs will drive savings in future years, the report suggests.

Another recommendation is that the city establish a "standing" Finance Review Committee to carry on the detailed work necessary to enhance the city's bottom line.

“Most of the issues we examined are very involved and need more time and effort,” said Ron Becker, the panel’s chairman. “There’s so much more to do. Council members can specify what they want to work on first, but some matters will require additional working groups.”

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