Pension Perk Up For Debate In Philadelphia

Originally published on June 8, 2011 12:22 pm
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RENEE MONTAGNE, host:

And now to a political standoff that shows why it's so difficult to get municipal pension costs under control. A controversial perk allows city employees in Philadelphia to cash in on their pensions before they retire. The provision is up for debate today.

Philadelphia's Democratic mayor is pushing to end it, but as NPR's Joel Rose reports, he's meeting fierce resistance from the city council and municipal unions.

JOEL ROSE: It's not unusual for city workers in Philadelphia to retire for a day, take a five or six-figure pension payment, and then go right back to work at their old jobs. This is perfectly legal under a city program known as DROP, short for Deferred Retirement Option Plan.

Zach Stalberg at the election watchdog Committee of Seventy says there are a lot of people who want to see DROP dropped.

Mr. ZACH STALBERG (Committee of Seventy): They hate the idea of - especially elected officials - walking away with a package of several hundred thousand dollars, retiring for one day and then coming back to work, in a day when most people don't even get pensions anymore.

ROSE: This is not exactly how DROP was intended. It was created in the 1990s, when Philadelphia was having trouble retaining experienced cops and firefighters. The idea is that city workers would announce their retirement plans a few years ahead of time. In return, they get a big chunk of money from their own pension funds in a lump sum.

Thousands of city employees rushed to sign up for this unusually generous perk, right up to the president of the city council and a former mayor. So, last year, current Mayor Michael Nutter ordered a study to find out how much DROP really costs.

Mayor MICHAEL NUTTER (Democrat, Philadelphia, Pennsylvania): And the answer is clear and direct: the program has cost us money, a lot of it. We can't afford it anymore, and we need to get rid of the program.

ROSE: The administration study found that DROP cost the city $258 million over 10 years. But DROP does have its defenders.

Ms. CATHY SCOTT (President, AFSCME District Council 47): All you ever see are the big dollars.

ROSE: Cathy Scott is president of AFSCME District Council 47, a union that represents city workers. She says the mayor and the media have given DROP a bad name by focusing only on the big payouts.

Ms. SCOTT: They focus on the highly compensated people, the elected officials who are getting very large DROP amounts. They never talk about what the average person gets.

ROSE: Scott says the average lump sum payment is only about $100,000. And her argument has found some traction in Philadelphia city council, where members seem wary of alienating city workers and their unions.

Lawmakers commissioned their own study of DROP, which found that the program has cost the city only $110 million. Councilwoman Jannie Blackwell speaks for many on council who say the program should be reformed rather than scrapped.

Ms. JANNIE BLACKWELL (Councilwoman, Philadelphia): I really think John and Jane Q. Public deserve the program - rank-and-file citizens who retire from the city who haven't made a lot of money all the years they've been working and who can use a little nest egg of their own money that they saved over the years to help them as they transition to retired life. So I think that we need to keep it for them, if for no one else.

ROSE: Philadelphia is one of dozens of cities and states that face a looming pension crisis. Recent studies by researchers at Northwestern and the University of Rochester put unfunded municipal pension liabilities at well over $3 trillion. They say Philadelphia's pension alone is underfunded by more than $9 billion.

Compared to numbers like that, Zach Stalberg at the Committee of Seventy says DROP is just a drop in the bucket.

Mr. STALBERG: But it's become the symbol of the city's pension problem, its pension mess. So, literally, it can't afford it, but beyond that, it comes down to: Do you have the will to try to fix the pension problem or not?

ROSE: So far, critics of DROP say the answer seems to be no.

Joel Rose, NPR News.

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