If all you need is love, Philadelphia might be the city for you. If you’re looking for something more—say, a public pension you can count on—you should try another town. The City of Brotherly Love has less than half the funds necessary to meet its public pension obligations. Worse yet, even when its investments over-perform, as they did this year, the city doesn’t pour the money back into the suffering fund. Instead, Philadelphia hands out bonuses to retirees—and this year the bonuses amounted to half its excess earnings. Bloomberg reports:
The pension system as soon as next quarter will give an extra $62.4 million to retirees, enough to heat and light schools or pay the starting salaries of almost 1,400 teachers. The payouts exacerbate the distress of the pension, which is 47 percent funded, said Lawrence Tabas, chairman of the Pennsylvania Intergovernmental Cooperation Authority, the state-appointed overseer of the city’s finances.“We’re in a crisis situation,” Tabas said by telephone. “If we continue to do nothing and have white papers and task forces and discussions, there will come a time when we won’t be able to meet the obligations.”
This, as should not need to be said, is a bad idea, and not only because it keeps the fund from climbing partway out of the ditch. Markets have their ups and downs; even a healthier fund should put aside surplus cash to see it through the lean years. And Philadelphia’s pension fund is not at all healthy:
The fund has about $4.8 billion of assets to pay $10.1 billion of obligations. It is in weaker shape than 17 of the 21 plans of the 10 most populous U.S. cities, according to the state oversight agency.Pension costs are consuming more of Philadelphia’s resources: The expense has grown to 39 percent of payroll this fiscal year from 17 percent in 1991, according to the agency.Investment losses and inadequate contributions fueled the fund’s decline, the authority said. Philadelphia supports more retirees and beneficiaries — about 35,000 — than current workers in the system, who number about 27,000.
Defenders of the decision to pay out bonuses said that they can’t justify punishing current retirees, who don’t receive inflation increases, simply to stabilize the fund. It seems the road to Detroit is paved with good intentions.