Controller Butkovitz Proposes Innovative

CltyController Alan Butkovitz proposes the city offer cash buyouts to retirees. Those
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who accepted would surrender their lifelong pensions.
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month's pension board meeting .
Butkovitz is suggesting that the city sell
bonds to cover the buyouts. The debt ser­
vice on those bonds would reduce the
benefit of the program.
Butkovitz wants to target retirees cov­
ered by Plan 67 because it represents $5
billion of the fund's $5.7 billion shortfall.
Its terms are particularly generous.
The plan covers police and fire employ­
ees hired before 1988, union-represented
municipal employees hired before 1992,
and nonunionized employees hired be­
fore 1987.
Police officers and firefighters covered
" by the plan can retire at 45 with a full
lifetime pension. Other municipal employ­
ees can retire at 55.
Police and fire employees can receive
up to 100 percent of their final highest
sa)ary. 'Municipal employees can receive
_. up to ~O .percent of the average of their
thr~hi~est salaries.
More recent hires not covered under
Plan 6imust put in longer time on the job
and can expect to receive more modest
pensions. Their plans, on average, are
more than 72 percent funded.
'The city is up to date , more or less,
with anybody who is -in current plans,"
Butkovitz said during last month's pension
board meeting. "So, our problem is that
we have to do something about the old
plans. ... One of the few things you can do
about the old plans is reach a settlement
with people who are in the old plans."
Individual settlements would be deter­
mined by a person's annual pension and
life expectancy. Butkovitz gave a simpli­
fled example of a city employee, with a
life expectancy of 30 additional years, re­
ceiving a $30,000 annual pension . That
employee could expect $900,000 in retire­
ment. A buyout at 50 percent would pro­
vide $450,000 in a lump-sum check.
Given the sudden large sums of money
people stand to get, Butkovitz wants to
make sure that anyone who takes the buy­
out receives financial counseling .
"You run into the same types of issue
that you do with big lottery winners in
that big winners sometimes don't know
what to do with a big influx of money,"
Butkovitz said ,
ContInued from Al
that would actually result in significant
savings."
Finance director Rob Dubow is in­
trigued by the buyout concept.
"It's an interesting idea that deserves
'furth er examination," he said.
While not yet adopted anywhere, publicpension buyouts are gaining attention na­
tionwide as cities and states grapple with
gJ;'O~. pension deficits.
"
-Dllnois lawmakers, for instance, are
considering lump-sum payouts to solve
their state's pension crisis. Nashville con­
sidered a buyout program last year, but
" ultimately decided against it.
."People are looking for different solutions," said Greg Mennis, director of the
public sector retirement systems project
at Pew Charitable Trusts.
He acknowledged that government buy­
out programs face high hurdles.
"It's complex," he said, " ... striking a
balance between boosting the city's fi­
nances and maintaining workers' securi­
ty. The outcomes are so uncertain."
Butkovitz is proposing that the city of­
fer buyouts to 34000 city retirees and
2,500 active employees who are covered
by the city's oldest and costliest pension
plan; referred to as Plan 67. The city's
actuary is preparing an analysis to deter­
mine the savings and cost of a buyout.
City Council would need to approve any
buyout
At the moment; Butkovitzhas no recorn­
mendation as to what the buyout percent­
age should be. "My hunch is that it would
be worthwhile if even one person took it,
but I need to see that statistically tested,"
Butkovitz said.
A preliminary run of numbers present­
ed during the Feb. 25 pension board meet­
ing showed that if every past and present
employee covered under Plan 67 took a
50 percent buyout, it could reduce the
city's liability by $3.7 billion.
There is still the question of how to pay
for the buyouts.
Thking the cash from the city's current
pension assets would severely drain the tBJ cvarga [email protected]
fund, city actuary Ken Kent said at last 19215-854-5520 (]@lnqCVargas
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"3 -~ 0 7- »o II:.,
'Joats might rel:ievesome pension tension
By Claudia Vargas
STAFF WRITER
ITY CONTROLLER Alan Butko­
. vitz thinks he has a solution for
Philadelphia's staggeringly un­
derfunded pension fund: buy­
outs.
Butkovitz is proposing that the city offer
up-front cash payments to retirees, who, if
they took the option, would surrender
their lifelong pensions.
The payments would represent only a
portion - say, 50 percent - .of what a retir­
ee could expect to receive over a lifetime.
Still, a fair number of retirees might be en­
ticed by the prospect of a cash windfall
they could invest on their own, Butkovitz
said.
"This would give people the opportunity
to start a business," he said. "Or do some­
thing that could potentially change their
life and provide financial security long­
term. And, of course, they could convert it
into an annuity."
tSuch buyouts could benefit the city by
dramatically reducing the pension fund's
overall liability. The fund is $5.7 billion
short of its $11 billion obligation to city
workers' pensions.
"There's a persistent concern in the city
about getting control of pension costs and
a lot of-things have been tried that were"nib­
bling around the edges;" Butkovitz said.
"So, it seems like the environment is ripe
for ideas that would actually result in sig­
nificant savings."
Finance director Rob Dubow is in­
trigued by. the buyout concept.
tions," said Greg Mennis, director of th.
public sector retirement .systems projec
at Pew Charitable Trusts.
He acknowledged that government buy
out programs face high hurdles.
"It's complex," he said, " ... striking a bal­
ance between boosting the city's finances
and maintaining workers' security. The
outcomes are so uncertain.
Butkovitz is proposing that the city offer
buyouts to 31,000 city retirees and 2,500
active employees who are covered by the
city's oldest and costliest pension plan, re­
ferred to as Plan 67. The city's actuary is
preparing an analysis to determine the sav­
ings and cost of a buyou t.
City Council would need to approve any
buyout.
.
At the moment, Butkovitz has no recom­
mendation as to what the buyout percent­
age should be.
"My hunch is that it would be worth­
while if even one person took it, but I need
to see that statistically tested," Butkovitz
said.
A preliminary run of numbers presented
during the Feb. 25 pension board meeting
showed that if every past and 9resent em­
ployee covered under Plan 67 took a 50 per­
cent buyout, it could reduce the city's liabil­
ity by $3.7 billion.
There is still the question of how to pay
for the buyouts.
Taking the cash from the city's current
pension assets would severely drain the
fund, city actuary Ken Kent said at last
month's pension board meeting.
Butkovitz is suggesting that the city sell
11
Controller Alan Butkovltz: "This would give people the opportunity to start a
business."
ALEJANDRO A. ALVAREZ / Staff Photographer
"It's an interesting idea that deserves
further examination," he said.
While not yet adopted anywhere, public­
pension buyouts are gaining attention na­
tionwide as cities and states grapple with
growing pension deficits.
Illinois lawmakers, for instance, are con­
sidering lump-sum payouts to solve their
state's pension crisis. Nashville consid­
ered a buyout program last year, but ulti­
mately decided against it.
"People are looking for different solu­
,~---
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See PENSION Page16
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current plans,'.' .Butkovitz .said
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3/7/2016
Controller says pension buyouts could cut Philly retirement liability -
NewsWorks
MARCH 7,2016
Controller says pension buyouts could cut
Philly retirement liability
BY TOM MACDONALD
Philadelphia's City Controller has come up with a patch to help pump up the city's sagging
pension system.
Alan Butkovitz suggests offering cash buyouts to the oldest city workers to get them out of the
most lucrative pension programs.
"About $6 billion out of $6.9 billion of what the city owes that the city doesn't have the funds for
are because of retirees that were in the system between 1967 and 1987,'1 he said.
The proposal would offer a lump sum payment to the pensioners, which would be worth far
less than what they would get through years of payments. That discount is where the city finds
savings.
"That would yield at a maximum up to $3.8 billion worth of savings on the $6.9 billion the city
owes," he said.
City finance director Rob Dubow calls the proposal interesting, but he says more research is
necessary before offering buyouts.
SUPPORT PROVIDED BY
http://www.newsworks.orglindex.php/locallitem/91653-conlroller-says-pension-buyouts-could-cut-philly-retirement-liability
1/3
mbe JbiIabeIpbia mribune .'
Butkovitz proposes buyouts for city
retirees
Posted: Tuesday, March 8,201612:00 am
Ayana Jones Tribune Staff Writer
City Controller Alan Butkovitz has come up with
fund.
a buyout proposal to address Philadelphia's underiunded pension
Under his proposal, the city would offer buyouts to retirees who would surrender their pensions if they took the option .
The measure could impact 31 ,000 city retirees and 2,500 current employees who are covered by an old plan referred
to as Plan 67. The plan covers city workers who were hired between 1967 and 1987. The city's pension fund is $5
billion short of its $11 billion obligation to city workers' pensions.
"The issue is that they be offered a percentage of what they would get in the cumulative payments during their
remaining lifetime in return for signing over their pension and that has been considered at a 50 percent level and a 70
percent level.
There's to be various scenarios," Butkovitz said during an interview with the Tribune. "lt would be offered to the
individual pensioners to decide whether they want to take it or not. If everybody who is qualified would take it, it would
cost close to $ 4 billion and the city would probably have to issue a bond to borrow that money, knowing that the
interest rate on that and the savings by people taking a fraction of their pension, would much more than make up for
the cost of the borrowing ."
Butkovitz said, if the measure is approved, those who receive the buyout must receive financial counseling.
"We're going to insist that if this goes through that every worker covered would be required to go through an
education process so that they clearly understood what they earned and what they would be trading it for," he said.
City Council would have to approve any buyout.
"It is our understanding that the city actuary is analyzing Controller Butkovitz's proposal. We look forward to reviewing
the results of that analysis," Jane Roh, spokeswoman for City Council President Darrell Clarke said Monday.
Councilman David Oh, who introduced a bill to reform the city's pension fund earlier this year, said he has not formed
a conclusion about the controller's proposal.
"Certainly it's good to have ideas to think about, so I appreciate him putting it forward. Ultimately it's a choice ," Oh
said. "For my part, I did a charter charge provision in reforms to the pension system which I think will address why we
have this problem in the first place. I think the main thing is we have to address the pension problem at its root and
the immediate issue of the lack of funds.
"I think the overall issue is why was there a retirement fund in the first place and that was to provide for the workers
so that they do not become financially needy, causing themselves a lot of hardship," Oh said.
He says Butkovitz's proposal does not address the root of the pension fund problem .
.. I introduced a bill which would deal with what created the problem. It would, I think, eventually address the problem
but what he is offering is a way to remove the debt," Oh said.
He says there are two issues that can arise with Butkovitz's proposal.
"One, is that the right thing to do?" Oh said. "Let's say it's effective, but should we give people 50 percent of what
they have coming to them? If we did that and many city workers ended up in a bad financial situation, would they
come back to politicians and say you need to make this whole in some way because we were shortchanged. What
would that lead to?"
Earlier this year, Oh introduced legislation in City Council that would amend the City Charter to "impose the required
discipline" to address the problems of the city pension and retirement systems.
Oh's pension reform bill has yet to be brought up for a hearing.
[email protected]
(215) 893-5747