Philadelphia city workers pension fund sees a rare year of positive growth
The fund collected $27 million more than it paid out in 2018. But it's still woefully underfunded.
The increase may be small, but for the first time in more than two decades, Philadelphia last year saw more money flow into its workers’ pension fund than was paid out.
A report unveiled by the city pension board on Thursday said city employees and taxpayers contributed $865 million to the fund, while $838 million was paid out in retiree benefits and fund expenses, in fiscal year 2018, which ended June 30.
Overall, the plan is still projected to have only 47 percent of the $12 billion it needs to pay current and future retirees. But that’s an improvement over what had been 45 percent funding status for years for the struggling pension fund.
City Controller Rebecca Rhynhart, who is a member of the pension board, commended the city’s improvements but called for further reforms and improvements.
More recently released numbers show that the fund has been losing money since the close of the fiscal year. For calendar year 2018, the fund averaged a 4.2 percent loss in investments. The fund would have to perform exceptionally well the next several months to be able to still meet its assumed rate of return on investments for fiscal year 2019.
The increase in funding was in part a result of additional contributions from city employees, negotiated in the most recent labor contracts, and a portion of the sales tax being used to help pay off the fund’s $6.1 billion unfunded liability.
The city pumped in an extra $63.1 million in fiscal year 2018, which included $24 million in sales tax revenue and $6 million in additional member contributions, according to the actuarial valuation report. Both those numbers are expected to continue increasing each year under the city’s new funding policy.
Rhynhart said during Thursday’s meeting that investment returns on public pensions have been dropping and are expected to continue to do so. She said she would like the fund to move from its current 7.6 percent assumed rate of return to a 6.8 percent rate. She also made other recommendations, including amending the city’s investment policy and adding an extra layer to its stress testing.
Fellow board members, however, pushed back on her proposals, saying that everything she recommended was already being done, even if it wasn’t a written policy.
“Everything you have here — [it] makes sense to formalize it. I don’t want it to go to the public as if these are new ideas,” said Brian Coughlin, the firefighters union’s representative on the board. “The only question I have that I wouldn’t want to see is that 6.8 percent. I think that’s unfair and a little bit irresponsible.”
Such a shift would limit the fund’s market risk but cost the city $1.6 billion more over several years, Rhynhart said.
“I know there’s a big hit on the city’s budget,” Rhynhart said. “But I do think it’s realistic, and it’s also in the best interest — which we are all working towards — for the pensioners and future pensioners.”
Rhynhart said that while she didn’t expect the board to adjust its investment return rate to 6.8 percent in one move, she would like to see it lower than 7.55 percent. She asked that it consider her proposals at the March meeting.
Coughlin and other board members were ready on Thursday to vote to decrease the rate to 7.55 percent, noting that since 2005 they have been paring the assumed rate of return from its high of 9 percent. But they held back at Rhynhart’s request.
The fund’s investments saw a 9 percent return in fiscal year 2018. But over time, the asset return rates have been well under 7 percent — for example, averaging 6.73 percent over the last five years.