Pension reform could potentially save Newport millions

With pension reform dominating the political debate in Rhode Island, a closer look at what’s happening in Newport provides the chance to look at what the typical pension costs taxpayers now and what a reformed system might look like.

The heads of Newport’s police and fire departments said it’s nothing more than coincidence. They’ve both announced they will retire in June.

Police Chief Michael McKenna has put in 26 years, and Chief Harry Hallgring Jr. has done almost 30 years with the fire department.

They both have nearly maxed out on their retirement benefits and will get full health coverage until age 65, when they are eligible for Medicare.

The city of Newport has its own pension system, but it’s pretty typical. McKenna, based on his salary of $116,606 with 26 years of service, will get a pension of $74,628. Hallgring, who’s earning $107,490 and has 29 years of service, will receive $74,568 a year.

These pensions are not unusual, and that’s what General Treasurer Gina Raimondo and state leaders are struggling with: How to make the system work so it’s sustainable.

Let’s look again at McKenna, because his union has just earned a 2 percent cost of living increase, or COLA.

Here’s what his pension will look like going forward:

McKenna will start with a pension of $74,628. By age 72, he’ll be earning more than he makes today at $117,680. If he lives to age 89, the city will pay him a total of $4.5 million.

If his pension were based on only 1 percent per year of service, he would start with a pension of $30,317, and if the cost of living adjustment were calculated at 1 percent, at age 72 he’d be making $38,114. The total payout after 40 years would be $1.5 million.

Workers might say those benefits with 1 percent accrual and 1 percent COLA are too low. But it is illustrative of the different strain those adjustments put on the taxpayer.

Newport’s police and fire pensions are underfunded by about $80 million, according to the city’s figures.

Besides their pensions, each of the chiefs will get a one-time payout of more than $45,000 for unused vacation and sick time. 

Article source: http://www2.turnto10.com/news/2011/may/24/pension-reform-could-potentially-save-newport-mill-ar-502951/

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