Are you living the American dream? Or are you funding it? If you’re a taxpayer in Westerly, Rhode Island, you’re funding it. In this case, it’s recently retired Police Chief Ed Mello who’s living the dream—retired at age 43 with a $54,000-a-year pension. In the private sector, with interest rates so low, that equates to 401(k) savings of around $1,350,000.
Westerly’s police chief contract has a 30-year mandatory retirement for chiefs. Why not simply change it or hire from outside to avoid the years of service? The Westerly Sun points out, “Union officers likely would cry foul if the town hired from outside, but must take responsibility for putting the town in this position as a result of their contract.” Mello is now the fourth chief getting a pension from the town.
Towns need to get out of the pension business altogether. Union leadership has turned what is supposed to be an incentive to retain employees—and yes, chiefs are employees—into an incentive to retire. Towns should not have to own their employees for life.
Based on a report from 2009, the Westerly police pension plan had a 45% unfunded liability. It’s far from safe and is in worse shape than the state-run plan. The creation of a “Mello Rule” could get rid of the 30-year mandatory retirement. But better yet, shift over to a 401(k) and put the responsibility back on the employee. As for Mello, are you wondering if he’s off to the beaches? He’s not. He’s back to work as the new police chief for Jamestown, Rhode Island.
Utah’s Pension Plan Works
Rhode Island Treasurer Gina Raimondo’s pension reform bill should have mirrored Utah’s. Raimondo’s plan calls for existing employees and new employees to enroll in a hybrid 401(k). The major thrust behind the move is to make sure contributions flow to the already retired. But she could have accomplished much more by offering a choice between a pension or a 401(k), not a silly, half-baked hybrid.
Utah offers new employees a choice. The state, meaning the taxpayer, contribution to the pension is no longer open ended. It’s capped at 10% of employee salaries. Now Utah taxpayers are protected. In Rhode Island, the state continues to see its portion go up mostly due to weak investment performance.
How to Attract Jobs
In 2010, former Red Sox pitching ace Curt Schilling got a $75-million loan from the Rhode Island Economic Development Corp. (RIEDC) for his gaming company, 38 Studios. RIEDC viewed it as a way to support companies with hard-to-collateralize assets. “We’re one of the first states to do this,” says Keith Stokes, REIDC director. “Our goal is to create high-skill, high-wage jobs.” 38 Studios employs 300. Not including interest payments, if it pays any, the Rhode Island cost per employee is $250,000. And they’re not all Rhode Island jobs, I’d guess.
No one ever questioned Schilling’s ability to outsmart his opponents. If Rhode Island were more welcoming to businesses, it wouldn’t have to offer these one-sided deals. What’s more, legislation passed this year taxes downloaded games. It may apply to 38 Studios’ Kingdoms of Amalur: Reckoning, set for an early 2012 release. Haven’t taxpayers put enough money toward 38 Studios? Leave it to a gamer like Schilling to come out on top.