Pension Talks Focus on Cap on Outside Earnings

By Daniel Barbarisi; Journal Staff Writer

If, through an outside job, the pensioner’s total earnings add up to more than 125 percent of what an active city employee now in the retiree’s former position makes, the disability pension would be reduced.

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PROVIDENCE – With an initial round of changes to the city’s pension system under its belt, the City Council is teeing off on a second round of pension reductions, starting with a provision that would cap the amount of money disability pensioners could receive from the city if they also were earning substantial outside income.

The cap is common in other communities, according to the city’s consultant, and is used by the state. Providence’s measure would actually be more forgiving than those used by the state and many other municipalities.

The Providence cap would apply to disability pensioners who also earn outside income through second jobs.

If, through an outside job, the pensioner’s total earnings add up to more than 125 percent of what an active city employee now in the retiree’s former position makes, the disability pension would be reduced.

But the disability pension payments could not be reduced to an amount lower than what the employee would earn with a regular service pension.

Disability pensions typically pay 66.6 percent of the retiree’s three highest salary years, while service pensions pay a lower amount.

As an example: Assume that a city employee retired on a disability pension, and made $45,000 at the time of retirement; the pension would be $30,000 annually.

Then, assume the pensioner takes an outside job and earns $60,000.

For the purposes of this example, say that an active city employee in the pensioner’s former position earns $65,000.

Under the proposed ordinance, the pensioner’s earnings would be reduced if it totaled more than 125 percent of a current employee’s salary – which in this case would be $81,250.

Because the pensioner would be earning $90,000 between the pension and the outside job, it would exceed the cap by $8,750. In other systems, the disability pension would be reduced by that amount.

But because Providence is also putting a floor on the measure, and stating that the payments cannot drop below those received under a regular service pension, the pensioner would only lose $3,750 annually, and would end up with a total of $25,000 in pension payments from the city, and a total income of $85,000.

In addition to the financial benefits for the city’s drastically underfunded pension system, the city would be able to glean financial information about its retirees; at present, the city has no knowledge of the financial status of its disability pensioners.

The council is also still trying to figure out if it wants to apply the change to current retirees, or if the cap would only apply to future disability pensioners.

Kerion O’Mara, who represents the retired police and fire pensioners, said that his one priority is ensuring that the changes don’t apply to current retirees.

“I don’t think it’s fair to go backwards,” he said.

O’Mara acknowledged that there have been problems with the pension system in the past, and that pensioners may be working outside jobs that require great physical exertion, but he said that isolated problems shouldn’t force wholesale changes on existing retirees who may depend on the pension money.

“I’m not going to stand here in front of you and say that every- body was legit. I’m not that dumb. But it should only be done going forward,” said O’Mara, who is himself a disability pensioner after having been shot in the line of duty on the South Side in 1989.

But Councilman Cliff Wood said that if the city is serious about saving the pension system, and preserving it for future pensioners, everything needs to be considered. Any immediate savings to the system would only come from changing the rules for existing pensioners.

“Why isn’t everything on the table if it’s legal to do so? Why not?” he said.

City Solicitor Ken Chiaverini was ordered to examine the legal ramifications of changing the system for existing retirees, and report back next Thursday.

The council is also considering a series of other changes in addition to the earnings cap, and expects to start hearing those next week.

Last week, the council approved three changes to the system. The centerpiece was the removal of a potentially unique benefit that allows Providence firefighters who qualify for a disability pension to retire with their pension, tax-free, and then take back the money they contributed to the city pension fund, plus interest. The money they take back is taxable.

A second provision would mandate that the more than 800 city employees receiving disability pensions have their disability recertified on an annual basis. A third measure would allow the city to accept medical examinations administered by doctors used by the Workers Compensation Court.

dbarbari@projo.com / (401) 277-8062

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