Testimony of AFSCME District Council 47 President Catherine Scott
Before the Committee on Labor and Civil Service of the
Council of the City of Philadelphia
June 2, 2010
Room 400 - City Hall
Good afternoon Chairman Green and members of the Committee. I am Catherine Scott, President of AFSCME District Council 47. As you know, District Council 47 represents the professional employees of the City of Philadelphia Including social workers, librarians, registered nurses, and the Philadelphia Parking Authority. Local 2186 represents first level supervisors employed by the City, the First Judicial District and the Philadelphia Parking Authority. Local 810 represents the professional employees of the First Judicial District.
I appreciate the opportunity to appear before the Committee to offer testimony on Bill 100286 concerning the establishment of Plan 10 and the creation of a defined contribution plan for certain City employees hired or rehired after January 1, 2010.
First, I understand that the proposed amendments to Plan 10 and the adoption of the DC plan do not immediately impact upon the collective bargaining rights of AFSCME DC 47 represented employees. As the members of this body are well aware, any attempt by the City to unilaterally create a new pension plan for our represented members without the agreement of the Union would be a clear violation of Pennsylvania law. To the extent that the legislation would affect the rights of employees who have already been hired and placed in an existing pension plan, the amendments would also raise issues of constitutional proportions.
Needless to say, it is not District Council 47’s purpose in appearing before this body to comment on this proposed legislation to bring the status of our negotiations with the City before the City Council. That process, to the extent it is occurring at all, must happen across the bargaining table. Nor, is it our purpose to in any way interfere with the Act 111 interest arbitration process between the City and the Fraternal Order of Police.
My purpose in appearing here before this Committee is to express the views of my Union and my members on this kind of legislation. We see this as a harbinger of things to come. The administration clearly wants to move all City employees, including District Council 47 represented employees, into a defined contribution plan. They have said so across the bargaining table, and incorporated such changes into the City’s bargaining proposals. The Mayor, the Finance Director, and other high administration officials have repeatedly criticized our members’ pension benefits as something that they intend to diminish. These public officials rely upon purportedly independent studies, such as those done by the Pew Foundation, studies which are designed to further demonize public employee pension benefits, charactering them as “anachronistic” or “ticking time bombs” or other such inflammatory characterizations. The public message is that theonly path to fiscal salvation for the City of Philadelphia, and state and local governments in general, is to eliminate traditional defined benefit plans and replace them either exclusively with a defined contribution (DC) plan or a combination defined benefit plan with substantially lesser benefits and a defined contribution plan.
The legislation which you have before you today for consideration is certainly a move in the direction of diminishing pension benefits available to employees of the City who will find themselves covered by this plan.
First, Proposed Plan 10, if passed, would freeze monthly pension benefits for long-service employees. A 30 or 40-year City employee in Plan 10 would receive a monthly benefit based only on his or her first 20 years of City service, and nothing thereafter. In contrast, current employees earn an additional pension benefit for each year of service, capped at 80% of their final average pay for plan J and 100% for Plan Y.
Second, Proposed Plan 10 has a dramatically lower monthly benefit formula. Under Plan 87, a non-uniformed employee earns a monthly benefit equal to 2.2% of final average 3-year’s pay for the first 10 years of service, and 2% each year thereafter. Under Plan 10, this drops to 1.25% of final average 5-year’s pay – again with a 20 years of service cap.
Third, the defined contribution plan feature of Proposed Plan 10 is remarkable only for its stinginess. The City would have to contribute no more than 1.5% of pay to an employee’s account, and that is only if the employee contributes at least that much of his or her own pay to the City’s 457(b) deferred compensation plan. Of course, employees’ savings would be entirely subject to the whims of the financial market, since employees would receive at retirement only whatever is in their account balance at that time. The defined contribution feature, therefore, adds only to the retirement in-security that workers already face.
In my commentary, I do not mean to suggest that there is not a pension funding issue in the City of Philadelphia. However, those funding issues are not the product of overly generous pension benefits. That is certainly not the case here in Philadelphia. Lost in all the rhetoric over the evils of public employee pension benefits as they exist today is the single startling fact that the principal reason for the existence of a financial pension funding crisis in most jurisdictions, and certainly in Philadelphia, is under-funding by the government employer. That is certainly true here in the City of Philadelphia, where administration after administration has made purposeful and intentional public policy decisions to under-fund pension benefits. In making those decisions, they have cheated their employees, cheated the taxpayers, and frankly, made very bad public policy choices.
The only answer now, say public pension nay sayers, is to slash and/or substantially dilute existing defined benefits plans or simply abolish them and replace them with defined contribution plans.
We at District Council 47 think that this is another example of bad public policy at work. Further victimizing the victims by slashing the pension benefits of our hard working public employees is not the magic elixir that will cure state and local fiscal budget woes. All it will do in the long run is make it harder for state and local governments to recruit and retain the qualified employees needed to provide the services which only government can provide.
Diverting new hires into Plan 10 will also further exacerbate the plight of the existing pension fund. The fund will be deprived of the added income resulting from contributions of new employees into the system. Depriving an already underfunded system of the opportunity for additional employee contributions makes no sense.
Traditional defined pension plans are an important reason why many employees choose a career in public service over higher paying private sector careers. Further, these traditional defined benefit plans have a significant positive ripple or multiplier impact upon the broader economy. Whether looked at in the form of the trillions of dollars in assets under investment and management by state and local government pension plans, or the dollars paid out to retirees and beneficiaries, and what those
dollars buy, the impact on the broader economy is huge. In the view of AFSCME District Council 47, traditional defined benefit plans are not an insidious evil to be hastily jettisoned in the vain hope of balancing the next year’s fiscal budget. Prudently administered defined pension plans operate as a positive economic force in the community, not just for the employees and retirees who benefit directly, but by virtue of
the economic impact throughout the community.
Plan 10 is simply not good public policy. It is not good for City employees. It is not good for the City economy. It will do nothing to solve the City’s current budget crisis.
DC 47 would recommend segregating the Police arbitration language in this proposed legislation from the newly added non-represented and exempt employees.
I thank you for the opportunity you have afforded to us to share our comments on this proposed legislation and would be happy to entertain any questions.
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