City’s Retirement Plan Claims Against Buck Dismissed

A U.S. district court has dismissed a lawsuit in which the city of Providence, Rhode Island, claimed a miscalculation by Buck Consultants caused it to miss out on cost savings for its pension plan by leading it to settle a lawsuit with a union and retirees.

The city alleges that Buck overestimated the amount the city would save by suspending cost-of-living adjustments (COLAs) for the city’s pension plans, causing it to negotiate and approve a settlement with the unions representing police officers and firefighters, as well as the association representing retired police officers and firefighters, which it would not have agreed to had it known of Buck’s error. The city and the Providence Retired Police and Firefighters’ Association, Inc. were ordered into mediation in litigation concerning the constitutionality of a pension ordinance that would suspend COLAs for the pension plan as of January 1, 2013.

The city contends that Buck’s estimate negligently overestimated the city’s savings by using the incorrect start date for the COLA suspension (January 2011 instead of January 2013).

At first, it seemed the court would rule in Providence’s favor. Chief Judge William E. Smith of the U.S. District Court for the District of Rhode Island found the city showed genuine material facts in dispute concerning whether Buck’s estimate was in fact an overestimation based on the data it was given, and found there are questions of fact concerning whether Buck breached the applicable actuarial standard of care.

In addition, the court determined there was sufficient evidence to create a question of fact as to whether the city’s decision to go forward with a settlement agreement of the litigation with the unions even after finding out about Buck’s alleged error was justified by the “effort, risk, sacrifice, or expense” that would have been involved in reneging on the deal with the Retiree Association and the unions at that point.

However, the turning point in Smith’s decision was caused by Buck’s argument that the city’s damages are speculative. The city says that, but for Buck’s overestimation, it would have been able to negotiate a better deal with the Retiree Association and the unions, resulting in $10 million in savings, and it would have enforced the pension ordinance, saving $80 million.

The city’s director of administration and chief negotiator testified that, had Buck’s estimate been correct and the city knew its annual required contribution was not going down as much as it thought, the city would not have agreed to the terms of the settlement; it would have insisted on some further concession from unions and retirees. He also said if no further concessions could have been reached, he would not have recommended the city settle with the parties “because the savings were not going to be sufficient for our needs.”

But, the court said the city did not present any evidence showing that it actually could have succeeded in getting any further concessions from the unions, let alone in what amount. Smith noted that even the city’s director of administration testified that he honestly didn’t think the city could have gotten more concessions.

Even assuming that the city would have gone forward and enforced the ordinance, and prevailed in the consequent litigation despite the risks, the court said, the city’s damages theory is still speculative. “Without taking into account the cost of litigation and any number of other costs the City would have incurred going that route, it is not at all clear that the City would have come out ahead, let alone $80 million ahead,” Smith wrote. He granted Buck’s motion for summary judgment.

The court’s opinion is here.