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Speaker Spotlight: Butkovitz recommends staying the course to restore Philadelphia’s pension system

Our city’s unfunded public pension liability remains one of the most significant challenges to Philadelphia’s future. We were grateful to have City Controller Alan Butkovitz, our city’s elected fiscal watchdog, give a presentation about tackling this challenge at our February meeting.

Philadelphia’s pension system currently has only 46 percent of the funds necessary to cover anticipated retirement obligations to current and future city retirees, according to actuarial estimates.

There’s no silver bullet that will fix the situation, but there are steps that we must take as a City to stabilize our financial future, Butkovitz argued.

A variety of gradual changes are needed to protect the city’s long-term fiscal health. While remaining focused on our future, we also have to uphold the promise of a secure retirement that we have made to public employees who spent their careers serving the residents of Philadelphia, he said.

Butkovitz first highlighted the changes that have already been implemented which represent the first step toward remedying this problem.

About $5 billion of the pension fund’s outstanding projected obligation comes from older retirees and their beneficiaries. Beginning in 1987, a series of changes were instituted to the city’s pension system – including requiring increased contributions from current municipal employees into the system and changing the way benefits are calculated – that reduce costs for more recent employees.

Over the long term, these plan changes will work to stabilize the retirement system. Further reforms along these lines may be necessary to reduce costs, Butkovitz said, including changing the way overtime is used to calculate pension benefits and limiting the right of city employees to receive pension boosts for time spent in other public sector work.

As a member of the Board of Pensions, Butkovitz also spoke about the reforms he championed to return sound fiscal management to our pension system. He talked about how he cleaned house, fought against cronyism and hired professional fund managers to make better investment decisions on behalf of retirees.

Philadelphia’s pension fund is now one of the best-managed retirement systems in the Commonwealth, according to the independent Pennsylvania Municipal Retirement System and the Pennsylvania Employees Retirement Commission. The result has been restored trust that pension contributions are being invested responsibly, as well as a sustained improvement in investment returns.

But Butkovitz said that better investment returns and reforms to pension formulas won’t be enough by themselves to restore our pension system to appropriate funding levels. The most important thing Philadelphia can do, he said, is to ensure that our pension fund remains viable is to make sustained investments into the system.

Our pension system’s funding levels began to decline when political leaders started lowering payments by paying the Minimum Municipal Obligation required by law, Butkovitz said. These decisions may have freed up money in the short term for flashy projects and municipal service expansions – but they hamstrung our future by increasing long-term costs.

It took years for our pension funding levels to deteriorate, and Butkovitz argued that it will take years to restore our pension funds to healthy levels once again. Butkovitz called for a political consensus around making a sustained commitment to our retirement system – for the benefit of our hardworking public employees as well as our city’s long-term future.

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