John F. Street, Lynne Abraham, and Sylvester Johnson are long gone from city government, but certainly not forgotten.
In fact, taxpayers continue to send each more than $100,0000 a year for their former service as mayor, district attorney, and police commissioner, respectively.
The trio of retirees are among 33 former city employees, including elected officials, who are paid more than $100,000 a year, despite no longer coming to work. Johnson tops the list with an annual pension of $152,439. Second is recently retired Mayor Michael Nutter at $141,906.
The pensions stand as a reminder of the roots of Philadelphia’s pension crisis – an arguably overly generous benefit formula combined with underfunding of the system along the way. Exacerbating the problem is the fact that there are now more retirees collecting pensions than active employees contributing to the fund. And those retirees are living longer than anticipated.
The result is a pension funding crisis. The city is $5.9 billion short of its $11 billion pension liabilities.
Last year, the pension fund paid $719.5 million in retirement allowances.
“The city can’t afford to pay pensions at that level,” City Controller Alan Butkovitz said.
The problem, decades in the making, is not unique to Philadelphia. Many cities and states are grappling with large unfunded liabilities, also a result of costly benefits. It’s not uncommon to see six-figure public pensions in other large cities.
“It is more generous than what you get in the private sector,” said Stephen Eide, a senior fellow at the Manhattan Institute, a New York-based think tank.
Diane Oakley, of the National Institute on Retirement Security, said the public-pension levels are more understandable when the whole compensation package is taken into account. Public-sector employees generally receive lower salaries for similar jobs in the private sector, she said.
“They’ve made this deal that the benefits are more important to us than salary,” Oakley said. The pensions, then, are a draw to get people to work for the government.
The median private-pension benefit of individuals age 65 and older was $9,227 a year in 2014, according to the Pension Rights Center, a nonprofit advocacy group based in Washington. That same year, the median state- and local-government pension benefit was $14,158.
The median for the city’s oldest and most expensive plan is $24,155.
Pension benefits are determined by a formula that includes final average compensation and years of service.
Retirees from the city’s oldest pension plan – available to police and firefighters hired before 1988 and nonuniformed employees hired before 1992 – have the most lucrative payouts.
The plan was created in 1967 by Mayor James Tate, who was in a bitter reelection fight and saw an advantage in winning favor of the city’s municipal workers by way of an attractive pension package.
Under what became known as Plan 67, for the year it was created, police officers and firefighters can retire at 45 with a full lifetime pension. Other municipal employees can retire at 55.
Police and fire employees, who do not receive Social Security, can receive up to 100 percent of their final highest salary. Municipal employees can receive up to 80 percent of the average of their three highest salaries.
Facing a financial crisis in 1987, Mayor W. Wilson Goode oversaw a revision of the pension plan, which became known as Plan 87. That plan has an older retirement age and less credit given for time of service. But it also had some lucrative benefits for elected officials.
Under Plan 87, elected officials may retire at 55 and can get 100 percent of the average of their three highest salaries after 281/2 years.
Out of the top 100 current city pensions, 91 fall under Plan 67 members; nine are elected officials under Plan 87. The highest pension for a nonelected city retiree in Plan 87 is $77,220 annually.
City officials say that out of the $5.9 billion unfunded liability, $5.1 billion is owed to Plan 67 participants.
“Those benefit costs were more than we could afford,” city Finance Director Rob Dubow said.
During the Nutter administration, the city created a new hybrid pension plan that includes a retirement savings account similar to a 401(k) in which the city matches employee contributions up to 1.5 percent of compensation for each year. The employee also gets a guaranteed benefit at retirement, though a lesser amount than Plan 67 and 87 retirees.
However, Plan 10, as it is called, is mandatory only for new register of wills employees and prison guards. The bigger unions balked at joining the new plan. Instead, those city employees agreed to pay a percentage or two more into their pension plans, depending on when they were hired.
Despite the changes, the math still doesn’t work out in taxpayers’ favor. The city is paying out more than it is investing in the plan.
Take last year. Nearly 28,000 employees contributed $58.7 million to the pension fund, while the city paid in $577.2 million. The fund paid out $719.5 million to the 37,945 retirees and beneficiaries. The city’s expense included $1.7 million in the controversial DROP retirement benefit.
An additional cost to the fund last year was the $62 million in pension bonuses doled out as result of legislation that was sponsored by Mayor Kenney when he was a councilman.
Those payments, plus a bad investment year, contributed to millions lost in asset value, dropping the pension system’s funding status to 45 percent.
An informal group made up of the controller’s office, administration, and labor officials are looking into the pension issue, Butkovitz said. They plan to offer recommendations to the administration later this year.
At the same time, the Kenney administration is beginning to negotiate a new contract with District Council 33, the largest of the municipal unions. Any pension reform in that contract will likely set the tone for the three other municipal contracts Kenney will have to negotiate in the next two years.
“We are talking to all the unions about what we can do on pensions,” Dubow said.