Pension Contributions Differ For Public Employees, Police/Fire Personnel

VILLAS — Comparing the pension system for public employees and police and fire personnel is like comparing apples and oranges, according to League of Municipalities Executive Director William Dressel, Jr.
In an email, he told municipal clerks last week that local public employees statewide are currently paying more than their fair share in the Public Employees Retirement System (PERS) based upon the original design of the system.
He said they are paying 38% more than the original design and 38% more than the employer.
Dressel said that is not the case for police and fire employees paying into the Police and Fire Retirement System (PFRS).
PFRS and PERS, by state law, mandate that local government employees participate in one or the other system depending upon their qualifications, he said.
The employee would contribute 5 percent of his or her earnings to the system and the employer would match that contribution. The combination of annual contributions over time, coupled with investment opportunities would result in adequate funding of the pensions as delineated by the defined benefit system,” said Dressel
“Modifications have taken place over time and the balanced approach has become skewed. Also, the employers have not made contributions at various times, pursuant to state legislation,” he said.
In past years, state legislators and governors declared a holiday from pension payments as a form of property tax relief.
“We all know it was not relief, it was simply postponement and compounding of the problem,” said Dressel.
The normal funding costs for the PFRS requires employees to contribute 8.5%. They increased the amount from 5% to 8.5% when the unions lobbied to enhance their pension to 25 years of service and retirement, regardless of age, or 20 years of service and 50% pay regardless of age, he said.
The unions agreed to increase their contribution but it did not equate to the normal cost required by the employer. In the latest pension valuation the normal cost for employers to fund PFRS is 15.874%,” said Dressel.
“Clearly one can agree with the concept that there should be a balance between employee and employer costs. And just as clearly, that is not the case with the PFRS. The employers are required to pay almost double the amount of the employees. All of this results from mandated state legislation, which the League of Municipalities lobbied against. State mandates cost property tax dollars,” he said.
Employers are required to pick up the cost to retire unfunded accrued liabilities. In the latest valuation, to retire the unfunded liability is an additional 14.580% of salary, said Dressel. “Thus, it is costing the local employer 30 cents for every dollar of salary or a 30% funding requirement to maintain the current PFRS system.”
He said the system is out of balance and legislative action would be required to bring it back into balance.
“A major part of this will be the elimination of binding arbitration and changing of criteria for when police and fire may retirement, and under what conditions,” said Dressel.
The PERS system was designed to be balanced with 5 percent contributions from both employer and employee. Dressel said based upon the latest valuation the employer is paying 3.96% to fund the normal cost and the employees are paying 5.5%.
He said the local PERS employees are the only group in the state significantly paying more for their pension benefits than was originally designed many years ago. Local employees are paying 38% more for the funding of their normal pension requirements than the employer, said Dressel.
Lower Township Mayor Michael Beck said pension costs for township police amounted to $25,000 annually plus $6,000 to $7,000 to FICA in addition to $20,000 in healthcare costs.
“Before they draw a penny of salary, we’re over $50,000 per officer,” he said. “If we had $50,000 a year jobs, we’d have people lined up 10 blocks long trying to get them.”
Beck said the median W-2 form for a Lower Township Police Officer last year was $95,000. He said with benefits, officers total over $140,000 per year each.
He said the binding arbitration system should be abolished. Beck suggested binding arbitration should be “gutted” to the point where it is not hampering the township in what it needs to do offer fair salaries.
In 1988, Philadelphia police upped the retirement age for police officers to 50. Lower Township continues with a police retirement age of 45, said Beck, a former Philadelphia police lieutenant.
Health benefits for Philadelphia officers are limited to five years after retirement, he said. Lower Township police receive health benefits for life plus cost of living increases, said Beck.
Salaries for township public works employees are proportional to what is paid for similar jobs in Philadelphia, he said.
“What were paying for police is not proportional to what they pay in Philadelphia, it’s way out of line,” said Beck.
He said the problem is the fault of public officials “that don’t have the courage to say no.”
“That starts at the local level and goes right through to the state house,” said Beck. “They can’t say no because they are afraid of special interest groups.”