philadelphia pensions

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

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.

Philadelphia Pension Board Appoints Interim CIO

The chief investment officer of Philadelphia’s Board of Pensions, Sumit Handa, announced his plans to resign earlier this month.

He officially left the post on January 15.

Now, the Board has appointed an interim CIO to take Handa’s place while a search for a long-term CIO plays out.

From Philly.com:

Francis Bielli, executive director of the Philadelphia Board of Pensions and Retirement, will be serving as the board’s interim chief investment officer, while the board conducts a search for a new CIO.

The board asked Bielli to put on a second hat, following Sumit Handa’s recent resignation. Handa, who was hired in 2011 to manage the investments of the underfunded $5 billion Philadelphia city workers’ retirement plan, is going back to the private sector, said Rob Dubow, pension board chairman and city finance director.

Bielli’s salary will get a $35,000 bump, totaling $204,000, to fill in the second job, the board announced at its meeting Thursday. A national search will be conducted to find a replacement for Handa.

Bielli will oversee the management of $4.7 billion in pension assets.

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562 of Pennsylvania’s Municipal Pension Funds Classified as “Distressed”

Pennsylvania Auditor General Eugene DePasquale released figures Wednesday on the debt and funding status of the state’s municipal pension systems.

The majority of the state’s 1,200 municipal pension plans were funded at 90 percent or higher, according to the Auditor General’s office.

But 562 of the plans were classified as “distressed”.

From TribLive:

Pittsburgh is one of 562 Pennsylvania municipalities with distressed pension funds, according to figures Auditor General Eugene DePasquale released Wednesday.

About 1,200 municipalities in Pennsylvania administer their own pension plans. Collectively, they were $7.7 billion underfunded through 2012, up from $6.7 billion the year before.

“It’s gone up by $1 billion with no sight of action yet by the Legislature,” DePasquale said. “There’s no way around it; we need a statewide solution.”

Most of the shortfall was in Philadelphia, where the city’s unfunded liabilities surpass $5.3 billion, according to July 2013 figures. Pittsburgh was the second-highest as of January 2013 at about $484 million.

[…]

DePasquale recommends some short-term fixes. Governments should prohibit employees from “spiking” their pensions by working extra overtime, increase age and service requirements in accordance with increased life expectancies, and ensure all plans require members to contribute.

Long term, DePasquale wants local plans consolidated into a state system with job-specific classes: police officers, firefighters and non-uniformed employees.

The state’s auditor general says he will “continue to beat this drum” until lawmakers come up with a way to make municipal pension systems more sustainable.

Photo by Paul Weaver via Flickr CC License

Philadelphia Pension Board Now Asking Investment Firms To Disclose Political Spending

For the first time, investment firms will be asked to submit campaign disclosure documents before managing money for the Philadelphia Board of Pensions.

Reported by PhillyDeals:

Over the opposition of Mayor Michael Nutter’s appointees, a majority of the trustees of Philadelphia’s $4.8 billion city pension plan have agreed to “request” dozens of private firms that are paid to manage city money — from giants like KKR and Barclays to local investors like Ted Aronson’s AJO Partners — to “disclose their political spending,” and will send current and future managers campaign finance disclosure requests, starting Jan. 1.

The move was cheered by city controller Alan Butkovitz, who had recommended this disclosure, noting the city has previously urged similar disclosures by the publicly-traded companies it invests in. “We will be asking for all donations from everybody,” including federal and state as well as city contributions, Butkovitz told me in a statement.

The four trustees representing city police, fire, white-collar and blue-collar workers joined Butkovitz in supporting the disclosure request, outvoting Nutter’s vote-no faction.The move follows the Securities and Exchange Commission’s first-time-ever order that a private money manager, Wayne-based TL Ventures, return $300,000 in state and city pension fees after founder Robert Keith gave cash gifts to Pa. Gov. Tom Corbett and Philadelphia Mayor Michael Nutter while getting paid to manage state and city pension funds, in violation of a 2010 federal law limiting contributions to officials with influence over pension boards.

Investment firms won’t be forced to disclose their spending – but they will be “urged” to by trustees.

The resolution can be read here.

Here’s How Philadelphia’s New Labor Deal Will Affect Pensions

After years of negotiations, Philadelphia and its largest union have come to an agreement on a new labor contract that has implications for the city’s pension system and the workers that pay into it.

The union, AFSCME District Council 33, indicated that its members will overwhelmingly approve the deal.

A major provision of the deal gives employees a choice between several retirement plan options. Employees will also have to pay more into the pension system. From Business Insurance:

[The deal] will increase employee contributions to the pension fund and allow new employees the choice between a hybrid plan and the traditional pension plan, said Mark McDonald, a spokesman for Mayor Michael A. Nutter.

The contract agreement term is retroactive from July 1, 2009, through June 30, 2016. Terms of the contract must be ratified by members of DC 33.

Current participants in the $4.8 billion Philadelphia Municipal Retirement System, a defined benefit plan, will have their employee contribution increase by 1% of pay over the next two years — 0.5% effective Jan. 1, 2015, and an additional 0.5% effective Jan. 1, 2016.

All employees hired after the contract is ratified can either enter the defined benefit plan and pay 1% more than current participants or enter a hybrid plan. Current employees have 90 days following ratification to make an irrevocable election to move to the hybrid plan.

The rest of the deal, as reported by ABC:

The newly reached seven year tentative agreement is retroactive from July 2009 and expires in 2016.

The deal will include wage increases of 3.5 percent this year, 2.5 percent next year plus a lump sum of $2,800 for every member. However the wage increases are not retroactive.

Also in the deal – employee contributions to pensions will increase and the city will pay a one-time $20 million lump sum into their healthcare.

In the future, the city will be able to use temporary layoffs, if needed, during an economic crisis.

The deal marks a compromise for both sides. According to WPVI, the deal will prove expensive for the city—estimates put the cost at $127 million over five years—that will require some budgetary finagling.

One major concession for the union was that sick leave will no longer be eligible for overtime pay.

Photo by Peter Miller via Flickr CC License

Philadelphia Funds Return 15 Percent As New Investment Strategies Play Out

The Philadelphia Board of Pensions, the entity that handles investments for the city’s pension funds, released its annual return data this week. The fund returned just over 15 percent for the fiscal year. From the Philadelphia Enquirer:

The total fund ended the fiscal year up 15.6 percent, outperforming its benchmarks by 1.96 percent. A more narrow portfolio, managed internally, did well, too, showing an 11.97 percent return, about 3.5 percent higher than similar benchmark funds.

The city’s pension system is severely unfunded, with only about half the money it needs to pay its $5 billion in obligations to current and future retirees.

The fund altered its investment strategy in recent years, in large part to the hiring of Chief Investment Officer Sumit Handa. From the Inquirer:

The board’s investment strategy has been revamped with the arrival three years ago of Handa and executive director Francis X. Bielli.

Investments were tweaked, Handa said, particularly the pension board’s fixed-income portfolio.

While investment firms handle the bulk of funds, the pension board staff manages a portfolio of about $260 million, or 5.3 percent of the pension fund. Known as the Independence Fund, it is designed as a “tactical” fund, Handa said, to be used to rapidly respond to opportunities the staff might see.

It strives for high returns at low risk. Since it was established in early 2012, it has been an overachiever by those standards. Outperforming its benchmark, it has shown only a third of the risk associated with investing in the S&P 500, while achieving 60 percent of the rate of return.

This marks the third consecutive year the fund has outperformed its benchmark. Previous to that, the fund has underperformed its benchmarks over the past five and ten-year periods.

The S&P 500 returned 21 percent over the period (July 1- June 30) that the Board of Pensions reported their annual return.