A report today by economists at Northwestern University and the University of Rochester ranks Philadelphia's municipal pension, at 45 percent funded in 2009, as the worst of the nation's large retirement systems, with enough assets to carry it only through 2015. It argues that Philadelphia and other cities are using unrealistic accounting practices that hide their true peril.
Philadelphia has good company, with pension funds in Chicago and Boston projected to be insolvent out of money by 2020. While other studies have detailed the state of municipal and state pensions across the country, Tuesday's report takes aim at pension managers' continued calculations that their assets will earn at least 8 percent a year to keep the funds solvent.
Bill Rubin, vice-chairman of the Philadelphia Board of Pensions and Retirement, said the debate about accounting methods is not new, and to suggest the city's pension would be insolvent in five years based on current assets does not account for the money put in by employees and the city each year. He likened the pension fund to the average person, who would go bankrupt if all their creditors, from mortgage lenders to credit card companies, called in their debts at once.
"I think it's crying "Fire!" in a crowded theater," said Rubin, one of four members on the nine-member board elected by the municipal unions. "In the end, we'll have enough money to pay our people what they're due."
Asked this morning about the report’s finding that Philadelphia will be unable to fulfill its pension obligations by 2015, Nutter said he had not yet seen the study.
He said he has never been told by his finance director or the pension board that the fund is nearing insolvency.
“What I can tell you is we are 45 percent funded. That’s not a great position to be in.”
Nutter is seeking concessions on pensions from three of four city unions currently working without a contract. The report questions, however, whether concessions, which are generally limited to new employees, are a viable solution to the current crisis.
"What is clear is that state and local governments in the U.S. have massive public pension liabilities on their hands, and that we are not far from the point where these will impact the ability of state and local governments to operate," the study concludes. "Given the legal protections that many states accord to liabilities...attempts to limit these liabilities with benefit cuts for existing workers will only go so far."
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