Rhode Island Supreme Court Upholds Cranston Pension Cuts

Rhode Island’s Supreme Court has reluctantly upheld a lower court ruling that allowed Cranston Mayor Allan Fung to suspend cost-of-living adjustments (COLAs) for some of the city’s police officers and firefighters in a move to prevent the city’s retirement fund from becoming insolvent.

The high court agreed with a 2015 superior court ruling that found that while police officers and firefighters in Cranston have a contractual right to their retirement benefits under both the US and Rhode Island Constitutions, a financial crisis that engulfed the city made the move necessary and legally justified.

“It is with a decided lack of enthusiasm and only after prolonged research and reflection and hesitation that I concur in the result reached in the opinion of the court in this case,” Justice William Robinson, wrote in his opinion, “and I do so in a decidedly dubitante frame of mind.”

The Cranston Police Retirees Action Committee had initiated litigation against the City of Cranston, Fung, and the members of the Cranston City Council after the passage of two 2013 city ordinances that included a 10-year suspension of COLAs for retirees of the Cranston Police and Fire Departments enrolled in the city’s pension system. The plaintiff alleged a litany of claims ranging from constitutional violations to statutory infringements.

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Robert Strom, Cranston’s finance director, testified during the trial that the city had suffered a financial crisis during the first few years of the Fung administration; Fung became mayor in January 2009. Strom also testified that he believed the city would face serious consequences if the 20-year guideline for emerging from “critical status” was not met, including reduced or eliminated state funds, which were instrumental to the city’s budget.

He also testified that raising taxes on the city’s residents would not have solved the pension system’s problems because the city would have had to raise taxes so substantially that it would have been unfair and unsustainable, particularly because Cranston already had one of the highest tax rates in the state.

In 2011, state lawmakers passed the Rhode Island Retirement Security Act, which includes a provision that allows for the suspension of COLAs if a system falls below 80% funded status in order to prevent changes to the core benefits package. During the trial, Fung testified that as of 2011, the city’s pension system, at its lowest point, was funded at only 16.9%, with $256 million of unfunded accrued liability.

“This is a historic day for Cranston, as by the Supreme Court upholding these changes, we are ensuring the long-term solvency of our locally administered police and fire pension plan,” said Fung in a statement in response to the ruling. “I cannot thank enough the union members and retirees who came to the table, saw the math in front of us, and worked with us to right the ship so that the funds will be there for them in the future.”

Fung also said the court decision “ensures that the Cranston taxpayers continue to receive the over $6 million in annual savings from these reforms.”

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Tags: Allan Fung, COLA, Firefighters, Pension, police, Rhode Island

A group of more than 1,000 UK academics said an inquiry “is urgently needed” into the £60 billion ($76.2 billion) University Superannuation Scheme (USS) after one of its own board members said she was stopped from investigating whether the fund’s deficit was as large as it claimed. The group made its demands public in an open letter to the Financial Times.

“We believe the conduct of USS valuation over the last two years has brought the scheme into disrepute,” said the letter. “An enquiry is urgently needed to obtain the necessary information to assess the USS’s claims, review the conduct of the USS executive, trustees, and The Pensions Regulator, and ultimately to rebuild members’ and employers’ trust and confidence in the scheme.”

The letter added that “it would be appropriate for a select committee of parliament to investigate.”

The issue began when Jane Hutton, a professor of statistics at the University of Warwick and a board member of the USS since 2015, said she was prevented from trying to determine whether the largest private sector pension plan in the UK was exaggerating its deficit.

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“My attempts to undertake my fiduciary duties as a trustee, to investigate concerns I had about the [November 2017] valuation, and to challenge advisers, met with repeated delays,” Hutton told the Financial Times. “I suspect the deficit has been substantially overestimated.”

In response to the allegations, USS CEO Bill Galvin, and David Eastwood, chair of the trustee board of directors, said in a statement that the organization took Hutton’s concerns “very seriously” and “have sought to address them in accordance with best practice, and have expended very significant resources in responding to her questions.”

They said that extensive information, analysis, and third-party assurance have been provided over several years as they have worked with Hutton to respond to her requests.

“No material changes were made to our valuation outcome as a result of any of these activities,” wrote Gavin and Eastwood, “nor have any material issues been raised by any of the expert advisers engaged by the trustee in relation to the 2017 valuation.”

The USS reported in its 2017 annual report that its deficit had risen to £12.6 billon from £5.3 billion in 2014 as a result of a significant decline in yields on low-risk UK government bonds during that period. However, it said that since then, the funding assumptions have been updated, and the deficit is now estimated to be £7.5 billion which, with assets of £60 billion, gives the plan a funding ratio of 89%.

“The trustees have a fiduciary duty to act in the interests of scheme members,” said the letter from the academics. “If the trustees or the USS executive are unable to act in the interests of scheme members, then they should resign,” they wrote, adding that “if the employer and union appointed trustees are failing to act in the interests of the members, then it is the responsibility of UUK (via the Employers Pensions Forum) and of the UCU to replace the trustees.”

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Tags: Bill Galvin, Jane Hutton, Pension, UK, University Superannuation Scheme