Few communities enforce rules that limit how much outside money police and firefighters on disability pensions can earn before benefits are reduced.

01:00 AM EST on Sunday, January 29, 2006

BY MARK REYNOLDS
Journal Staff Writer

Kevin Salvaggio is too disabled to work as a North Providence police lieutenant, but he's healthy enough to practice law.

The former North Providence police officer has a disability pension that provides more than $3,000 a month for life -- tax free.

The same type of disability benefit is available to the majority of firefighters and police officers who receive pension benefits through local plans, instead of through the state's retirement system.

A Journal investigation has found that 15 of the 22 communities with their own pension plans have not drafted rules that would allow them to cap supplemental income. Of the 7 pension authorities that have such rules, only 4 enforce them.

As a result, taxpayer-financed retirement programs are paying full disability pensions to former police officers or firefighters who retain plenty of earning potential, despite their disabilities.

"Ultimately, what is the purpose of this income?" asked Vincent F. Ragosta Jr., a labor lawyer who represents various cities and towns in contract negotiations. "It's to provide a cushion of income based on their disability. It's not intended to be a financial windfall or a foundation for them to go out and profit on the backs of the taxpayers. There's very little doubt we've created this privileged class."

MANY COMMUNITIES have rules that allow them to cut or eliminate a pension if a former police officer or firefighter is doing the same job someplace else. In some communities, officials can order a medical examination if they suspect that someone is no longer disabled.

But pension cuts based strictly on outside earnings remain rare. Although there has been some movement in Rhode Island toward vigorous enforcement of income rules for disability pensions, the majority of communities with their own pension programs haven't even taken the first step -- adopting the regulations.

"That's not something that we have for the town plan at this time," said Middletown's human resources director, Lynne Dible.

Pawtucket administrators track the income of disability recipients, but they do not lower payments if a police officer or firefighter gets another job, according to the city's finance director, Ronald L. Wunschel.

Providence has a pension system mired in a financial crisis. The system's unfunded liability -- the difference between the cost of the pension programs and the money the city has set aside to cover that cost -- jumped from $300 million in 2002 to more than $600 million last year.

Still, the city's pension ordinances do not describe any protocol for monitoring earnings and reducing disability pensions. They do, however, contain a reference to earnings. It tells officials where to place any money cut from a retiree's pension "as a result of an increase in his earning capacity."

Kenneth B. Chiavarini, the retirement board's lawyer, said he was not aware of any cuts in disability pensions based on that language.

The city's inability to adjust disability pensions based on supplemental earnings is representative of the many problems that have helped make the pension system so expensive, according to City Councilman John A. Igliozzi.

Income caps are fair and necessary for keeping the pension system healthy, he said.

"I'm extremely worried about a system that doesn't allow this," he said. "The system itself is bankrupt and can no longer operate the way it's being operated. That's a fact."

THE RATIONALE for enforcing income limits and adjusting pensions is that many former police officers and firefighters aren't too disabled to work, even though doctors have determined that they are too disabled for the rigors of firefighting or police work.

Pension authorities do not assess a disabled employee's ability to earn money in another line of work.

The degree of a person's career-ending disability isn't considered either. A firefighter with a bad asthma condition can receive the same disability benefit as someone with a much more serious disability.

If their disabilities are legitimate, retirees who can muster it should be able to find a new job and earn money without any penalty, according to Paul Reed, a staff representative of the Rhode Island State Association of Fire Fighters.

"Other people retire and go out and get jobs," Reed said. "They don't have to comply with an offset.

"Understand what the pension is for," he added, "You did something for your community. You lost something because you were working for your community in a very hazardous profession."

The rules for granting disability pensions, which are tax free, often reflect the special challenges faced by police officers and firefighters.

For example, state law says that any time a firefighter gets cancer, it is a job-related condition and the person qualifies for a disability pension. Some police officers, such as the ones in Cranston, have a provision in their contract that says that any police officer's heart attack or hypertension is "conclusively presumed" to be job-related.

Things are generally different in the private sector, and even in the federal government.

"If you're working for McDonald's and you have a heart attack, there's no presumption that it's because of job-related stress," said Allan M. Feldman, a Brown University economics professor and consultant who calculates the value of employee benefits, including disability benefits.

Feldman said that the U.S. Social Security Administration ceases paying a worker's disability benefit if the person takes a job.

THE NORTH PROVIDENCE Police Pension Board is one of the few with regulations that allow it to cut disability pensions based on additional income. An entire section of the board's rules is devoted to the outside earnings of retirees who receive disability pensions.

The town treasurer or the company administering the pension system is supposed to gather annual income statements from each recipient and notify the board if the earnings exceed a cap. The board is then supposed to review and adjust the pensions.

The regulations were adopted in 1994, but neither the treasurer nor the administrator of the plan, John Hancock Financial Services, has ever tracked anyone's supplemental earnings.

The treasurer, Finance Director Robert DiStefano, said he never gathered income information because he didn't know about the requirement. A spokeswoman for John Hancock, Melissa Simon, said the company's arrangement with the town does not make it responsible for that job.

But even if the board had that information, there would still be one piece of the process missing. The board's regulations say it can adjust disability pensions according to an income limit set by town ordinance.

There is no such ordinance.

That meant Salvaggio was free to earn as much money as he wanted after the pension board determined that his shoulder injury qualified him for a disability pension. He retired in 2004 after 19 years on the force.

Salvaggio, of Barrington, said he isn't sure how much money he has earned since he started working lots of hours in April of 2005.

"As far as income as an attorney . . ." he said, "I really don't know."

Town officials say they were unaware that they were supposed to adopt that ordinance until The Journal started asking questions about it last summer.

"I had no idea," said the president of the Town Council, John Sisto Jr., who is also chairman of the Police Pension Board. At the time the issue arose, Sisto had been the board's chairman for two years.

Town Solicitor Mark Welch, who also advises the Pension Board, looked at the issue. What he came up with took the town in a completely different direction.

Welch advised the pension board that it does not have the right to tinker with anyone's disability pension based on supplemental income, unless the board determines that the original disability no longer exists. He said he based his opinion on a state law that sets disability pensions at no less than 66 2/3 percentof the retiree's final annual salary.

That law says nothing about limiting outside income, Welch said.

"The state law, in my opinion, is the guiding light," said Welch. "I don't see the ability of the treasurer or the board for reducing retirees' benefits based on outside work."

Welch has a supporter in Johnston's assistant town solicitor, John M. Verdecchia.

"I don't believe we have a right" to reduce disability pensions, Verdecchia said. "We don't keep tabs on them. Do some people take advantage? I'm sure they do."

DIANE BOURNE, the assistant executive director of the Employees' Retirement System of Rhode Island, disagrees with Welch and Verdecchia. The system oversees pension plans for thousands of state employees, municipal employees and teachers as well as some local police officers and firefighters.

Bourne said the law that Welch cited does not mean that the state cannot make income-based cuts to disability pensions. In fact, Bourne said, other state laws specifically empower the state retirement system to cut disability pensions collected by former municipal police officers and firefighters.

One of those state laws says that the total amount of a retiree's income -- including disability payments and outside earnings -- cannot exceed the salary currently paid for the retiree's old job.

If the retiree exceeds that salary level, subsequent pension checks are reduced by the amount of the extra income, Bourne said. An overrun of as little as $500 triggers a pension cut.

The director of the state retirement program, Frank Karpinski, said the system has been policing disability pensions since he was hired in the 1990s. He wasn't sure exactly how many pensions the state has cut, but he didn't think there have been many.

The job is handled by a single part-time staffer, he said, adding, "It's nothing traumatic." Computers make the job easier, he said.

SOME COMMUNITIES in Rhode Island have followed the state's example, or are planning to.

In Cranston, officials assert that they are free to slash disability pensions if the recipients' earnings are too high. The city code contains a rule that limits supplemental income.

Paul Grimes, the city administrator, said that someone collecting $40,000 in disability payments annually can earn another $50,000 a year -- or 125 percent of the disability income. Above that, pension cuts kick in.

The city's enforcement of the income rules has been spotty, but that's about to change, Grimes said.

He also sees no conflict with the law that Welch cited.

"If they're earning more income, we're not taking away their 66 and two-thirds," said Grimes. "It's just sort of reallocating it."

Grimes said Cranston officials believe that the enforcement of income regulations will help them eliminate wasteful spending. He said that the city is about to mail notices to disability pensioners, so they know that the city will review their earnings each year and adjust their pension payments accordingly.

City officials have already identified a few pensions that might be eligible for a reduction, he said.

"We have a strategy for proceeding," he said. "And I think other cities and towns ought to as well, because questions are going to be asked."

Pension authorities in North Kingstown and East Providence agree with Cranston's approach.

North Kingstown in 1982 adopted its own version of the state laws Bourne cited and has reduced disability pension payments to retired police officers on several occasions, according to its finance director, Cynthia J. Olobri. North Kingstown uses the state standard, which limits total income to the amount currently paid for the job the retiree left.

In East Providence, the pension authority is responsible for 40 disability pensions and it closely monitors earnings, according to James McDonald, the city's finance director. Pensions are reduced "dollar to dollar" once someone's total income exceeds 150 percent of salary at the time of retirement, he said.

State Auditor General Ernest A. Almonte approves.

"I would recommend that towns comply with their regulations and pay what they're required to pay," said Almonte. "If they decide to pay more than they are legally required to for disability pensions, then they are making a policy decision to take on an additional burden."

With reports from staff writers: Kia Hall Hayes, Talia Buford, Zachary R. Mider, Arthur Kimball-Stanley, Alex Kuffner, Chelsea Phua, Cynthia Needham, Benjamin N. Gedan, Barbara Polichetti, Tony DePaul, John Hill, John Castellucci, Michael P. McKinney, Randal Edgar, Steve Peoples, Linda Borg, Arthur Gregg Sulzberger, Tatiana Pina, Gina Macris and Thomas J. Morgan.