Philadelphia Mayor Comes Out Against Pension Bonus Payments

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Philadelphia’s pension system is only 47 percent funded – but due to a unique policy, it will be handing out bonus checks to many retirees in 2015 to the tune of $62.4 million.

That’s because the system pays out a bonus when it exceeds a set investment return target.

The target in 2014 was 8.85 percent. The fund returned over 11 percent.

So, retirees will receive a bonus for the first time since 2008.

But city Mayor Michael Nutter is now criticizing the bonus payments, saying they “jeopardize…the future health of the pension fund in a significant way.”

More on Nutter’s comments, from Philly.com:

Current Mayor Nutter said Tuesday that the law is financially irresponsible and raises questions about Kenney’s judgment as a mayoral candidate.

“We cannot always do everything we want, even if those things are to make people feel better,” Nutter said. “To run a big city, you have to not only deal with the issues of the present, but you need to be able to see the long-term impact of your actions.”

[…]

“Purely for political reasons, from my perspective, in an election year, City Council removed the minimum threshold,” said Nutter, who was not in office at that time. “In doing so, from my perspective, they jeopardized the future health of the pension fund in a significant way.”

Finance Director Rob Dubow said the pension fund crisis has taken an increasingly larger bite of the city’s revenue over time. About 7 percent of the budget went to the pension fund a decade ago, he said, a figure that is now up to 15 percent.

“Those are dollars we would otherwise spend on city services for everybody, retirees and the rest of our citizens,” Nutter said.

Before 2007, the bonuses could only be paid out if the pension fund was 76 percent funded or more.

But then-Councilman James F. Kenney lifted the funding limit on the bonus payments.

 

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Philadelphia Pension System to Pay $62 Million Bonus to Retirees in 2015

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Philadelphia’s pension system is only 47 percent funded. But that won’t stop retirees from getting a collective bonus of $62.4 million in 2015.

That’s because the system pays out a bonus when it exceeds a set investment return target.

The target in 2014 was 8.85 percent. The fund returned over 11 percent.

So, retirees will receive a bonus for the first time since 2008.

Philadelphia’s isn’t the only pension system in the United States that pegs bonuses to investment return. But the practice is rare.

More from Bloomberg:

Philadelphia’s is the only system in Pennsylvania that ties payment of the extra cash to investment returns, said James McAneny, executive director of the state’s Public Employee Retirement Commission, which monitors local plans.

About two-thirds of plans around the country provide stipends pegged to inflation or predetermined rates, rather than investment performance, according to a survey by the National Association of State Retirement Administrators.

[…]

As soon as April, beneficiaries in the system for a decade may see a bonus, said Francis Bielli, executive director of the board of pensions and retirement. Officials haven’t determined how many people are eligible and may spread payments over two checks, he said. The payouts amount to half the extra investment earnings.

The city last paid the bonus in 2008, distributing $40.5 million, Bielli said. He declined to comment on the effect of the stipends or the oversight board’s recommendations.

As noted above, the bonus checks could come as soon as April.

 

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