From day one of this administration, Mayor Kenney has been focused on making changes that would secure the long-term health of the City’s pension fund. The health of the Fund is vitally important to thousands of retirees who devoted their careers to public service and to current employees who will rely on their pension when they retire.
Why is this important to you – the residents of Philadelphia? Pension costs are truly a common problem across the country for cities and states. The costs of pensions that are not covered by earnings must be covered from a municipality’s budget — taking dollars away from other needs. Here in Philadelphia, about 15 percent of our tax dollars go to pay for the Fund — more than double from 20 years ago. So improving the health of the pension fund will, over time, allow us to devote more dollars to the things that matter most to every resident — services like street repairs, sanitation, health services and police and fire protection.
We mention this now because the City has just received a national award for our pension reform efforts. The Government Finance Officers Association (GFOA), founded in 1906, represents more than 20,000 public finance officials throughout the United States and Canada. The GFOA recently announced that Philadelphia’s “Road to Pension Recovery initiative” is a 2020 GFOA Awards for Excellence Winner in the category “Solution to a Common Problem.”
What is Philadelphia’s plan?
The Road to Pension Recovery has three main components, and we’ve been working toward them now for several years.
- Dedicating additional assets to the fund — by increasing contributions to the Fund made by the City and its employees, the Fund is better positioned to withstand the ups-and-downs of the stock market.
- Reducing the rate at which future liabilities grow — the City and union negotiators agreed to create a new mandatory “stacked hybrid” plan for new, non-uniformed employees that is less costly to the Fund in the long term.
- Reducing the plan’s risk profile — the Pension Board has made some changes in the way the assets are managed, including shifting to assets that have lower fees and are less volatile.
The plan, which was a result of a partnership between the City and its unions, with crucial help from state and local legislators, is already working. These changes have resulted in two consecutive years of positive cash flows, meaning the fund is receiving more assets than it is paying out in benefits. The plan’s success is also borne out by the GFOA award. The group said, “The city’s approach has improved the health of its chronically underfunded pension fund and, in turn, improved the city’s overall financial condition.”
The work to improve the Fund continues. Efforts like this are vitally important, particularly as the COVID-19 pandemic impacted the City’s finances. And — as this award acknowledges — they serve as a model for other struggling cities and states who struggle with the costs of pensions.