Pension cuts for the already-retired

by Doron Taussig

Published Dec 20, 2011

This is potentially an important development in Rhode Island:

Retired police and firefighters from Central Falls, R.I., have agreed to sharp pension cuts, a step thought to be unprecedented in municipal bankruptcy and one that could prompt similar attempts by other distressed governments.

The key word in that sentence is the first one -- "retired." Until now, municipalities faced with pension troubles have focused cuts elsewhere (such as existing services or future pension commitments) because of the legal difficulty of cutting pensions. After all, a retired worker's pension is supposed to be compensation he or she has already earned (and contributed to). Taking it away would be like taking back money already paid.

But in this Rhode Island town, that's what happened:

For years, its government failed to contribute enough to its police and firefighters' pension fund, and the fund effectively ran out of money this fall. The city, which had also promised the retirees comprehensive health benefits, could not cover the pension and health payments out of its general revenue.

The arrangement will take what may have been a sweet deal for some (the article says 60 percent of police and fire retirees collected full disability pensions) and make it very much not a sweet deal: Pensions will be cut up to 55 percent, and these retirees don't collect Social Security.

Again, most places with pension trouble haven't been contemplating this kind of move, because it generally wasn't considered an option. We'll see if that changes.

Published Dec. 20, 2011