It is understandable if most Rhode Islanders do not grasp the principles associated with defined-benefit pension plans. Most don’t have one. However, when Warwick’s personnel director, Oscar Shelton, and Dave Picozzi, chairman of the retirement board, make it clear that they don’t understand those basic concepts, it is downright frightening.
In co-authoring an erroneous op-ed piece recently, they wrote “once the money is in the [pension] plan – either through employees’ contribution or the city [taxpayers] – ownership of the money reverts to the participants. It is the same as when once an employee receives a paycheck, the city cannot tell them how to spend their money.”
In making this statement, Messrs Shelton and Picozzi miss an important point. Public employee retirement benefits are guaranteed by the taxpayer regardless of poor decisions and compounding losses. An employer does not indemnify the employee foolish enough to gamble his paycheck on slots from losses. Similarly, a private sector employee with a 401(k)-type defined contribution pension plan assumes full responsibility for his plan and any loss.
Sadly, in missing this distinction, the two, as well as Warwick Mayor Scott Avedisian, miss the heart of what is wrong with our public employee pension system in Rhode Island.
They blame Warwick’s approximately $250 million unfunded pension liability mess on past city leaders, claiming that all newly negotiated plans “are funded properly” – but at what cost to the taxpayer?
Taxpayers contribute 11 and 19 percent, respectively, of municipal employee, police and firefighter salaries to their pensions, which is two to four times more than the 5 percent match my employer contributes to my 401(k) plan. What private sector business can afford expenses like that? Many have suspended matching contributions altogether.
From fiscal years 2004 through 2008, Warwick’s pension costs have increased approximately 44 percent, from $13.7 million to $19.7 million. The fiscal 2010 pension budget is $20.7 million.
As acting director of public works, Mr. Picozzi should recognize this fact. Over the past three years, his street repaving budget was eliminated. That is a direct consequence of city officials running up the credit card while preaching fiscal responsibility.
Let’s examine the issue of Other Post-Retirement Employee Benefit (OPEB) liabilities, which include the cost of lifetime health care benefits.
Messrs Shelton and Picozzi claim they do not exist, equating them to the need for the city to pay its “electric bill” for the next 100 years. They write, “There is no actual liability on the city’s fund financial balance sheet,” and these accounting changes will not cost the taxpayers “one nickel more.”
In reality, independent consultants reported that Warwick’s unfunded OPEB is $350 million.
This year, the city left intact in all city contracts for the next three years a $600 cap on family-plan prescription drug benefits.
This is what happens when we have elected officials and their appointees who have spent too much time on the public payroll and are so far removed from the rigors of what most of us have to go through in the private sector. •
Robert Cushman is a former Democratic Warwick city councilman and former chairman of the Warwick School Committee. He can be reached at CushmanR@cox.net
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Mr. Cushman bemoans public employees enjoying a superior pension benefit than the one predominant in the private sector. The truth, outlined clearly on page 20 of this issue, is that 401K’s were originally intended only to “supplement” pensions, and are a woefully inadequte replacement. While the cost of maintaining the defined benefit may be clear and present, the potential future costs of a generation of seniors facing destitution in retirement could be far greater. Public sector benefits should be considered in the broader context of employee compensation, which despite Mr. Cushman’s protestations, is not generally considered excessive.
The point of this piece is that the way public employee pensions are currently setup, is that the cost of these benefits are unsustainable. Automatic COLA’s, look at the statistics. RI’s public pensions provide some of the top benefits in the region. Adding to that the cost of lifetime healthcare bebfits is making private sector property owners pay more and more taxes to cover this cost while getting fewer and fewer services.
Something has to gave.