US Supreme Court Declines to Review Cranston Pension Case

The US Supreme Court has declined to hear the case of Cranston, Rhode Island’s decision to suspend cost of living adjustments (COLAs) for some of the city’s police officers and firefighters.

The decision not to hear the case could have implications for other municipalities that are seeking to reduce previously promised benefits in order to shore up city finances.

“This gives people in other communities a little pathway to hopefully follow when they are facing similarly dire circumstances financially and a looming pension problem,” Cranston Mayor Allan Fung said, the Providence Journal reported.

The Cranston Police Retirees Action Committee had sued the City of Cranston, Fung, and the members of the Cranston City Council after the passage of two 2013 city ordinances. Both included a 10-year suspension of COLAs for retirees of the Cranston Police and Fire Departments enrolled in the city’s pension system.

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Cranston’s finance director testified during court hearings that the COLA suspensions were necessary as raising taxes wasn’t a feasible option. He said the city would have had to raise taxes so substantially that it would have been unfair and unsustainable.

The Rhode Island Retirement Security Act, passed in 2011, 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 trials, Fung testified that at the city’s pension system’s lowest point it was funded at only 16.9%, with $256 million of unfunded accrued liability.

The case made its way to the Rhode Island’s Supreme Court, which in June reluctantly upheld a superior court ruling that found that the city’s financial crisis 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,” Rhode Island Justice William Robinson, wrote in his opinion, “and I do so in a decidedly dubitante frame of mind.”

Fung said the pensions are currently funded at 23%.

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Tags: Allan Fung, COLA, Cranston, Cranston Police Retirees Action Committee, Rhode Island, US Supreme Court

As many as 117 multiemployer pension plans covering 1.4 million participants are underfunded by $56.5 billion, and could become insolvent within the next 20 years, according to a report from actuarial consulting firm Cheiron.

The situation has barely changed since last year’s study, which found 121 multiemployer pension plans underfunded by $48.9 billion.

The report is based on the most recent annual financial reports filed with regulators by multiemployer pension plans. It indicated the number of struggling multiemployer pension plans would have risen to 124 in the 2019 study, but seven failed or were shut down.

“If Congress doesn’t act soon, many more plans will fail and participants will lose their pensions,” Joshua Davis, a principal consulting actuary at Cheiron who analyzed the filings, said in release.

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The report found that as many as 12 more multiemployer pension plans expect to become insolvent during the coming year. And 44 plans have said they will fail within five years when the Central States, Southeast and Southwest Areas Pension Plan, the largest underfunded plan, expects to run out of money.

The Pension Benefit Guaranty Corporation (PBGC), the pension lifeboat, itself is in financial trouble and has said that it expects its insurance program for multiemployer pension plans to dry up in fiscal 2025.“This year’s projections for PBGC’s Multiemployer Program continue to show a very high likelihood of insolvency during fiscal year 2025, and that insolvency is a near certainty by the end of fiscal year 2026,” the PGBC reported in August.

All the financially distressed multiemployer pension plans are in “critical and declining” status and have informed regulators that they expect to become insolvent within 20 years, as required by the Multiemployer Pension Reform Act of 2014. If a plan is in critical status, adjustable benefits may be reduced and no lump sum distributions can be made over $5,000. If a plan is critical and declining, the plan sponsor may file an application with the US Department of Treasury to request a temporary or permanent reduction of benefits to keep the plan from running out of money.

Cheiron said the lion’s share of the total unfunded liability of all the failing multiemployer pension plans comes from just three plans: the Central States, Southeast and Southwest Areas Pension Plan; the New England Teamsters and Trucking Industry Pension Fund; and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union pension fund.

Those three plans account for $35.3 billion or 62.4% of the total unfunded liability of all the failing multiemployer pension plans. They cover just under 572,000 participants, or 41.8% of the 1.4 million participants in all financially troubled multiemployer pension plans. The PBGC covers a total of 1,400 multiemployer pension plans with 10.8 million participants.

The plans in the 2019 study have total assets of $41.8 billion and liabilities of $98.3 billion. According to the US Department of Labor, there are 52 plans in critical and declining status in 2019, down from 73 in 2018.

Senators Chuck Grassley (R-Iowa) and Lamar Alexander (R-Tenn.) released in November a plan that would prevent critically underfunded multiemployer pension plans from collapsing. The Multiemployer Pension Recapitalization and Reform Plan would create new powers for the PBGC, which would be allowed to take on liabilities from financially troubled multiemployer pension plans to help them pay their obligations to retirees and current workers.