By Scott Malone
BOSTON, Feb 26 (Reuters) - The city of Providence, Rhode
Island, on Tuesday sued a unit of Xerox Corp, saying it
had underestimated by about $10 million how much the city would
save when it renegotiated its pension benefits last year.
Providence charged in court papers that as it negotiated the
terms of changes to its pension benefits with workers and
retirees in 2012, the Buck Consultants arm of Xerox failed to
account for a cost-of-living adjustment paid to retirees during
The error will cost the capital of the smallest U.S. state,
which narrowly avoided bankruptcy last year in part due to Mayor
Angel Taveras' deal to cut its pension obligations, some $10
million over 28 years.
Providence faced about $900 million in unfunded pension
obligations when it entered the negotiations and had expected to
cut that liability by about $165 million through the pension
deal, the city said in papers filed in U.S. District Court in
Cash-strapped U.S. cities and states collectively face about
$5 trillion in unfunded pension obligations. Last week Michigan
declared Detroit in financial crisis, in part because of its
difficulty in meeting pension obligations.
Providence said it relied on Buck's advice in renegotiating
its pension terms.
"Had the city known that Buck's calculations were simply
wrong, the city would never have agreed with its union employees
and retirees to the pension modifications to which it is now
bound," it argued in its lawsuit, which seeks unspecified
The city charged that when first confronted with the error,
a Buck employee admitted the mistake but that other company
executives later backtracked.
A Buck spokesman declined to comment on the lawsuit.
"We have yet to be served with a lawsuit, so it would be
inappropriate for us to comment at this time," spokesman Steven
Providence avoided bankruptcy last year after cutting deals
with its unions, including the pension reduction, and reaching
agreements with nonprofit institutions located in the city. For
example, in one deal Brown University agreed to raise the
payments it makes to the city budget in lieu of property taxes.
Providence's northern neighbor, Central Falls, filed for
bankruptcy in 2011 and emerged late last year after it worked
out a plan to lower its long-term debt.
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