Public Employee Pensions and Benefits

Philly Union Priorities: Politics over Teachers

NOVEMBER 17, 2015

How would you feel if your employer took funds meant for your health insurance and spent them on partisan politics? Sadly, this is a reality for thousands of teachers in Philadelphia.

Evan Grossman of has the story:

Every year, the [School District of Philadelphia] is bound by its contract with the Philadelphia Federation of Teachers to pay more than $69 million for employee health care benefits.

The payments come in increments of $167.41 per teacher every two weeks during the school year, adding up to some $4,352 annually for each of the PFT’s 16,000 members. Those funds come from a pool of state and local taxes. The PFT’s Health and Welfare Fund receives a chunk of that money, which is earmarked for supplemental benefits, such as dental and vision, along with other programs like life insurance and its annual educational conference, which will be held in March 2016.

The Watchdog investigation found that more than $6 million from that fund was loaned, interest-free, to the union’s bleeding building fund, where it appears to have been spent on building maintenance and upgrades. According to Internal Revenue Service filings completed by the union, that money may never be paid back.

Part of the cash, loaned in five separate installments, was also used to subsidize the rent of the Jewish Labor Committee.

While teachers are working hard in the classroom, the Philadelphia Federation of Teachers (PFT) is secretly draining their insurance fund to subsidize politics and facilities upgrades.

Philadelphia is one of only two school districts in the state where teachers enjoy no-cost health insurance—generous benefits unheard of in the private sector. When Philadelphia’s School Reform Commission attempted to restore fiscal sanity to the money-bleeding district by asking for modest health cost sharing, the union responded with a lawsuit. The union’s refusal to accept even minor health care concessions is more remarkable given that millions of dollars from the Health and Welfare Fund are not even spent on health insurance.

As long as the Health and Welfare Fund serves as a slush fund for political activity, union leaders will fight tooth and nail to retain their unique taxpayer-funded health care privileges.

Of course, this isn’t the first time PFT leadership has used students and teachers as pawns in a larger political game. And it likely won’t be last—at least until government unions are more transparent in their operations and more accountable to their membership.

posted by JAMES PAUL | 04:06 PM | Comments

Pennsylvania's Public Pension Crisis Grows

OCTOBER 8, 2015

When you assume an investment return rate of 7.5 percent and your actual returns are 3.04 percent you have a problem. If you are the Pennsylvania Public School Employees' Retirement System you have a BIG problem.

This week, PSERS announced an investment return of 3.04 percent for the 2015 fiscal year. In other words, local school districts and state taxpayers will have to find even more cash to make good on retirement promises.

The PSERS system already carries a $35 billion unfunded liability, $39 billion if you look at the market value of assets rather than the actuarial value of assets. This shortfall will add roughly $2 billion to these deficit figures, when the official results are released this December.

Experts note the system's 7.5 percent return on investment assumption is overly optimistic. Chris Comisac over at Capitolwire (subscription) explains:

Wilshire Associates, an independent investment management firm . . . calculated the median return of public plans with more than $5 billion in assets at 3.4 percent, meaning PSERS fell short of that median level.

. . . since the most recent financial market meltdown in 2008-09, PSERS hasn’t had investment returns actuarially valued above 6 percent, with a few below 5 percent. Meaning that since 2008-09, PSERS’ investment returns have fallen short of their target, increasing the system’s unfunded liability.

PSERS is disguising how broken the pension system is by operating under the current investment return assumptions. Without substantial pension reform including compliant funding policies, the unfunded liability will continue to increase and stretch school districts and gobble up state tax dollars, leaving less and less for the rest of state government.

The one silver lining is lower investment fees. For the second year PSERS’ investment expenses have declined, from $558 million in FY 2012-2013 to $455 million in FY 2014-2015, an 18 percent reduction. But $100 million in savings pales in comparison to a liability growing by billions each year.

PSERS overly optimistic investment return assumptions are just one more example of how the system is broken. Pension reform isn't an option as budget negotiations continue; it's a necessity.

posted by ELIZABETH STELLE | 01:09 PM | Comments

Wolf's "Loser" & "Phony-Baloney" Proposals

SEPTEMBER 23, 2015

Last week, Gov. Wolf unveiled new, bad policy ideas—to slightly adjust a misguided pension proposal, and to propose a private manager to a government run liquor monopoly. 

But just as it was with the fabled wardrobe-challenged emperor, we aren't the only ones who have seen through the Governor's new clothes. Editorial boards across Pennsylvania have pointed out Wolf's new proposals are transparent and immaterial.

Lehigh Valley Live writes (emphasis added)

Instead of offering a real compromise, Wolf dredged up what can only be called Reform Lite — privatizing the management of the liquor system (but not the ownership or the workforce). He also came down in price on his hybrid pension proposal, saying that the earnings of new state employees over $75,000 would be shifted to a defined-contribution pension plan (down from his earlier ceiling of $100,000).

Non-starters, both.

Leasing the Liquor Control Board's management function to a private firm 10 to 25 years, as Wolf proposes, is worse than doing nothing, because it would prevent conversion to a market-driven system during that time. Nothing in Wolf's offer would greatly increase service or selection, or reduce prices. The unionized sales force would stay in place. So would the number of stores. Wolf's idea to extend beer and wine sales to convenience stores and restaurants is tepid at best, and pits government against private enterprise.

The Pittsburgh Post-Gazette adds (emphasis mine):

The plan is a loser. It privatizes nothing. What’s worse is that by projecting an aura of private operation it could perpetuate Pennsylvania’s antiquated system for far longer. The state needs to get out of the liquor business, once and for all, as soon as possible, without the use of Tom Wolf’s smoke and mirrors.

The Bucks County Courier Times editorializes (emphasis mine): 

Now that we’ve gotten an unvarnished look at those “historic” reforms, here’s our take: phony-baloney “reforms” that create the appearance of movement for a Democratic governor locked in a budget impasse with Republican legislative leaders. 

Lastly, Lancaster Online pans the proposal, urging Wolf to look to real liquor store privatization:

Forget his proposal last week to offer a long-term lease to manage the state liquor stores; private firms would bid on a contract to manage the system, which would stay under state ownership.

If Gov. Wolf can make a deal with Republican leaders that would make good on his promise to boost  funding for Pennsylvania’s public schools, he should  choose our children over the unions that oppose privatizing our state-owned liquor stores. If he fails to do so, he could lose the support of those who elected him because they’re rightly frustrated with the human costs of the ongoing budget impasse.

Gov. Wolf may have trotted out new clothes last week, but they don't cover up the bad policies he started with.

posted by NATHAN BENEFIELD | 11:38 AM | Comments

New Wolf Offer, Same Bad Policy

SEPTEMBER 17, 2015

Yesterday, 28 days after receiving a budget compromise proposal from legislative Republicans, Gov. Wolf rejected that offer and issued his own plan—hiring a private contractor to manage the government liquor system and slightly modifying his earlier pension proposal.

While Governor Wolf’s proposals are significant, and new to the current budget debate, they represent bad public policy.


  • Wolf’s plan to hire a private manager to run the liquor system replaces a government-run monopoly with a government monopoly run by a private company. In contrast to Wolf’s comments that he doesn’t want to “give this away to a crony,” that is precisely what this plan would do.
  • Consumers will not see better selection, prices, or service.
    • This plan doesn’t provide consumers new choices or true competition
    • This plan retains the one-size-fits all model that Pennsylvania consumers have come to hate—and drive to other states to avoid.
  • Wolf’s proposal doesn’t end the conflict of interest of government controlling and promoting the sale of alcohol.
    • It doesn’t change the fact that we having a single entity (or one person) choosing what products can and cannot be sold in Pennsylvania—which has resulted in rampant corruption and bribery.
  • The idea that wine in groceries and restaurants are “to be negotiated” means he isn’t offering the most basic reform consumers want to see.

Consumers will only see better selection, prices, and service when the government gets out of the wholesale business and allows competition, not monopoly, in wholesale and retail wine and spirits sales.  


  • Wolf’s stacked hybrid pension plan doesn’t offer meaningful reform. It is subject to the same political manipulations that plague the current pension system—increasing benefits and delaying contributions, kicking the can down the road.
    • The salary threshold could be adjusted at any point (Wolf proposed putting salary above $75,000 in a defined-contribution account, vs. his proposal of $100,000 a month ago) cutting into any “savings.”
    • While several states have created hybrid pension plans (part defined contribution, part defined benefit), no one has implemented a stacked hybrid.
  • Wolf’s $3 billion pension obligation (PO) bond proposal should be a nonstarter.
    • PO bonds have been historic failures—almost every city or state that has used pension obligation bonds have seen larger deficits after the bond issues. This includes in Philadelphia and Pittsburgh—where Mayor Peduto spoke out against Wolf’s bond proposal.
    • Wolf’s projected “savings” in reduced pension contributions don't include the interest payments on those bonds.
    • Ratings agencies have cautioned that pension bonds would result in bond rating downgrades.
  • Anti-spiking and revenue neutral option 4 reforms are good, commonsense reforms that protect taxpayers. Wolf should be applauded for supporting these reforms, and almost no one would disagree these are necessary changes.
  • The risk sharing for current employees is a good reform—but the $2 billion “savings” only occurs if the pension funds earn 6.5% instead of the projection 7.5%, an investment return that would create tens of billions in additional costs versus current projections.
  • Reducing Wall Street Investment fees is another good idea—SERS and PSERS have exorbitant costs—but Wolf has indicated he can do this administratively, with no legislation needed. This doesn’t need to be part of a “deal." 

posted by NATHAN BENEFIELD | 09:44 AM | Comments

Young Teachers Pay the Price for Pension Politics

SEPTEMBER 15, 2015

The first month of a new school year is an exciting—but stressful—time for school teachers. This is particularly true for young, newly-hired teachers who must quickly acclimate to their students, colleagues, and a professional environment.  

In Pennsylvania, however, rookie teachers face an additional burden. A recent article in the Wall Street Journal explains how the commonwealth’s hemorrhaging pension system stacks the deck against young teachers:

The pension plans…are structured to favor the small minority who teach in a single system for a working lifetime, at the expense of the vast majority who leave the system much earlier in their careers. 

Our state’s backloaded defined benefit pension system is a bad deal for younger teachers—not to mention workers who begin their career late or shift to another job. Fewer than 25 percent of Pennsylvania’s teachers will remain in the school system long enough to even become vested in their pension.

The WSJ article continues:

Under current plan structures, teachers accrue almost no retirement wealth in their first several years—then accrue substantially more as they near retirement age. The hypothetical Philadelphia teacher earns an average of about $1,326 in retirement compensation (in present-value terms) during each of her first 25 years of employment, followed by an average of about $37,593 during each of her last 10 years.

The Pennsylvania Public School Retirement System’s actuaries expect that about 80% of teachers will leave the system before their pension benefit is worth a single dollar. And according to a report last year from Bellwether Education Partners, more than half of all public-school teachers nationally will exit their school systems before their pensions vest.

Pennsylvania’s young public school teachers deserve better. They deserve a retirement account that is portable, and they deserve to own their retirement savings. Helping young teachers is yet another reason for Gov. Wolf to re-consider his veto of meaningful pension reform.

posted by JAMES PAUL | 00:08 PM | Comments

Setting the Record Straight on Pensions

SEPTEMBER 11, 2015

Government union leaders argue against meaningful pension reform with radical rallying cries like, "Your pension is under attack!" and mounds of other misinformation. Here's a quick fact check on some of the most common pension reform myths:

1. Myth: “Pension reform will cost taxpayers $40 billion.”

Fact: The Pennsylvania Employment Retirement Commission (PERC) estimates Senate Bill 1—passed by the legislature but vetoed by Governor Tom Wolf—would save taxpayers $10.1 billion over 32 years. The $40 billion figure refers to a different bill from a different legislative session. Moreover, the number is misleading because it assumes pension funds would generate a lower stock market return under the reform proposal.

2. Myth: “Defined contribution plans are bad for workers.”

Fact: If this were the case, unions would not offer defined contribution plans to their own employees. But they do. PSEA, SEIU, UFCW, AFSCME, AFT, AFL-CIO and PFT all offer a defined contribution plan, like a 401(k), to their employees, either alone or as part of a hybrid plan.

Union PSEA SEIU UFCW 1776 AFSCME 13 AFT-PA AFL-CIO Pennsylvania Philadelphia Federation of Teachers

Defined Contribution Plan Started





1972 & 2013


1979 & 1997

Also has Defined Benefit Plan?








Source: U.S. Department of Labor form 5500 searchable database

3. Myth: “Defined benefit plans provide a superior retirement.”

Fact: The Pew Research Center suggests state workers who leave their jobs after 10, 15 and 18 years of service would enjoy higher retirement income under Senate Bill 1, relative to the current system. This is due to the design of defined benefit plans, which tend to backload benefits.

Defined contribution plans are more generous for workers who begin their careers late or shift to another job—in other words, for the vast majority of today’s workforce. For example, fewer than 25 percent of Pennsylvania’s teachers will stay in the school system long enough even to become vested in their pension.

4. Myth: “Defined contribution plans cost more to administer and provide inadequate investment returns.”

Fact: In practice, large defined contribution plans cost less to administer than the average public sector defined benefit plan, as highlighted in a new study by Dr. Josh McGee for the Manhattan Institute.

In fact, McGee points out fees for the Pennsylvania Public School Employees Retirement System (PSERS) have tripled the average cost of the largest defined contribution plans. Gov. Wolf, who has expressed concerns about the investment fees state pension plans pay each year, should take note.

McGee's study also finds that investment returns are similar for defined contribution plans and that most defined contribution plans offer annuities—providing predictable annual income.

The facts are clear: meaningful pension reform is a critical protection for union workers. It would fulfill promises to current workers while providing future workers a more secure and flexible retirement.

posted by ELIZABETH STELLE | 09:10 AM | Comments

Audio: Weathering the Budget Impasse


Another day passes without a state budget in Pennsylvania, causing panic among public officials who can't pay the bills and among parents who have children attending schools unable to make payroll

Still, Gov. Wolf refuses to make meaningful compromises with state legislators. As a result, the people in both the public and private sector dependent on state funding are forced to make difficult choices to keep their operations going.  

So how has this budget impasse unfolded? CF’s Matt Brouillette joined WDAC’s Greg Barton to discuss its origins and why Gov. Wolf is standing in the way of a solution. 

Matt explains how Gov. Wolf's “veto of the budget in totality”–despite agreeing with 274 of 400 line items in that budget–could mean he won't be budging from his plans to levy the largest tax increase in state history any time soon.

Legislators have attempted to compromise with Gov. Wolf by offering a $400 million increase for education in exchange for pension reform. Two weeks after the offer, Gov. Wolf has yet to respond.

With no sense of urgency on the part of the governor, Matt believes it may take a crisis to move things along: “This, of course, is going to only come to a precipice when we see schools clamoring or having to borrow significant amounts of money because they’re lacking in state aid or the service agencies not being able to provide the services that needy citizens need.”

Click here or listen below to hear more.

Greg Barton’s Spotlight program airs on WDAC 94.5 FM on Saturdays at 12:30 pm.

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posted by JONATHAN REGINELLA | 05:28 PM | Comments

Audio: A Look at Gov. Wolf's "Concessions"

AUGUST 26, 2015

As state budget negotiations drag on, Gov. Wolf is pointing the finger at Republicans, claiming they have refused to move after he made “concessions on everything." So what compromises are included in these so-called concessions?

To name a few, Wolf’s original spending plan; Wolf’s original plan to increase the income tax; Wolf’s original plan to increase the sales tax; and Wolf’s original plan to borrow $3 billion in pension obligation bonds.

CF’s Matt Brouillette spoke with Gary Sutton on WSBA yesterday to discuss Gov. Wolf’s alleged budget compromises.

Matt explained how Gov. Wolf’s pension plan only includes reforms for 5 percent of current employees. It would do little to upend the destructive status quo, ensuring the pension system's problems are passed onto future generations.

Legislative leaders wisely rejected this “compromise” while responding with their own offer–one they hope will lead Gov. Wolf to abandon his unpopular budget proposal.

Click here or listen below to hear more.

The Gary Sutton Show airs daily on WSBA 910AM in the York area.

Follow Commonwealth Foundation’s SoundCloud stream for more of our audio content.

For mobile listening, get the SoundCloud iPhone and Android apps.

posted by JONATHAN REGINELLA | 11:34 AM | Comments

Audio: Gov. Wolf's Gambling Problem

AUGUST 21, 2015

There are numerous ways Gov. Wolf can balance the budget without raising taxes: reforming the pension system, cutting corporate welfare and selling the liquor business.

Instead, he plans on adding to state debt with pension obligation bonds–essentially borrowing money to gamble in the stock market while hoping for a good return.

CF’s Nate Benefield talks with WAEB's Bobby Gunther about Gov. Wolf’s misguided borrowing plans.

Nate explains how pension obligation bonds have a terrible trackrecord. Even Pittsburgh’s Democratic Mayor Bill Peduto has publicly criticized Gov. Wolf’s plan to use pension obligation bonds, saying his city should be the litmus test that proves pension bonds are not a solution.

Gov. Wolf should listen to his constituents who want long-term solutions, not historic tax increases.

Click here or listen below to hear more.

Bobby Gunther is on WAEB News Radio weekdays from 5 a.m. to 10 a.m.

Follow Commonwealth Foundation’s SoundCloud stream for more of our audio content.

And for mobile listening, get the SoundCloud iPhone and Android apps.

posted by JONATHAN REGINELLA | 03:30 PM | Comments

Exposing Union Myths and Hypocrisy on Pension Reform

AUGUST 20, 2015

Pennsylvania government unions rely on disproven myths to lobby against pension reform. Their actions, however, demonstrate they don't believe their own snake oil, and offer their employees' the same retirement plans they claim are bad for workers. 

Union leaders repeatedly claim that “defined benefit plans cost less to administer” than defined contribution plans (like a 401k).This myth has been obliterated.

In practice, large defined contribution plans actually cost less to administer than the average public sector defined benefit plan, as highlighted in a new study by Josh McGee for the Manhattan Institute.

This should be no surprise to Gov. Tom Wolf, as he’s been complaining about the hundreds of millions of dollars our state pension plans pay in investment fees each year. McGee points out that fees for the Pennsylvania Public School Employees Retirement System (PSERS) are about triple the average cost of the largest defined contribution plans.

McGee's study also finds that investment return are similar for defined contribution plans, and that most defined contribution plans offer annuities—providing predictable annual payments during retirement.

Government union leaders deny these facts and disparage any reform to our broken pension system. But there’s a catch—those same unions offer a 401k style plan to their employees.

Our release today demonstrates union hypocrisy regarding pension reform. PSEA, SEIU, UFCW, AFSME, AFL-CIO, and the PFT all publicly oppose putting public employees into a 401k-style plan or a hybrid, yet they all offer a 401k or hybrid to union employees.

These hybrid models, which include both a defined contribution and a defined benefit component, are exactly what union leaders are lobbying against in both SB 1 and Gov. Wolf’s proposed “compromise.” Without fail, each of the seven union giants provides retirement plans similar to the ones they’ve called too “risky” for public employees.

The motto of union leadership is "do what I say, not what I do." 

What Do Pennsylvania Government Unions Offer their Employees?
Government union leaders have opposed putting new state employees and school teachers into a "defined-contribution" plan (like a 401k) or a "hybrid plan" that includes part of a defined-contribution model, despite the fact nearly all the private sector has made this conversion.

However, major public sector union offer their employees a defined-contribution retirement plan or hybrid.
Union PSEA SEIU UFCW 1776 AFSCME 13 AFT-PA AFL-CIO Pennsylvania Philadelphia Federation of Teachers
Defined Contribution Plan Started 1997 1999 1985 1984 1972 & 2013 2014 1979 & 1997
Also has Defined-Benefit Plan? Yes Yes ?? Yes* ?? Yes* ??
via national affiliate 
Source: U.S. Department of Labor form 5500 searchable database

posted by NATHAN BENEFIELD | 10:24 AM | Comments

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