The state’s largest city, Philadelphia, is exploring an option to offer a one time payment to employees in a more costly pension plan in order to entice them to move to a less costly one. Based on the latest Act 44 distress score, Philadelphia is “severely distressed” with a funded ratio of 45%–$4.8 billion in assets and $10.8 billion in liabilities. Philadelphia’s impact on the overall aggregate health of the state’s 3,000 municipal pension plans can’t be overstated: with Philadelphia in the mix, the funded ratio of all plans is 65%. Remove Philly’s pension financials and the aggregate funded ratio rises nearly 20 percentage points.
Based on our 2009 report, Philadelphia’s funded ratio has dipped from where it was and obviously officials are looking for solutions. That’s why the pension board is debating switching employees over via the cash incentive. According to the article “If all 33,000 members in [the more costly plan], including retirees and active employees, were to switch over, the city would reduce its $5.9 billion unfunded liability by $1 billion, according to an actuary report. The cost for the cash incentive to switch over would cost the city $514 million.”
