Peduto Stance on Pensions Ruffles Party Feathers

When Pittsburgh’s mayor sided with state Republicans and against Governor Tom Wolf on the issue of public pensions, it was a one-day story for most of Pennsylvania.

But within Pittsburgh’s Democratic machine, his position may be adding fuel to what had been the quietly smoldering embers of factional division.

Peduto supports a Republican-backed state Senate budget proposal that would have switched new state employees, including legislators, from defined benefits to defined contribution plans similar to a 401(k), in which employees have the option to save and invest some of their paychecks, a portion of which the employer matches. (Trib, Bauder & Daniels)

A week later, at the Democratic Committee vote to nominate a new County Council member in the east (congratulations, Paul Klein!) our own Committee precinct rep criticized that proposal to us as placing the retirements of public safety personnel in jeopardy, at the whims of the stock market.

And we also heard again from “31Forever”, a commenter who after the primary election debated us at length over the utility of our local Party apparatus and its endorsements.

He / She / It submitted this essay to the Comet:

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Mayor Bill Peduto got himself into some hot water with Pittsburghers last Thursday, when the Tribune Review reported that Peduto supported a “defined contribution plan” to replace pensions for new state employees. It sparked a backlash on social media, forcing Mayor Peduto to, in certain cases, respond directly to his detractors. He touted the bill as “one that we could support”; although it was never really clear whether he was speaking of the city’s lawmakers, or Mayors of this and other cities.

Calling the Mayor’s idea “100% wrong”, Facebooker Chuck Pascal took the mayor to task for trying to end pensions, and he was correct. But why were people surprised? In his campaign of 2013, the Mayor’s website CALLED FOR EXACTLY WHAT HE’S NOW ADVOCATING. In a section on his campaign webpage labeled, “#2 Pension reform that protects workers and our budget”; Mayor Peduto called for the City of Pittsburgh to no longer administer its own pension; rather, to give it over to the State. Remember also, if you will, who was the Governor in 2013.

Tom Corbett.

A Tea Partier who consistently called for lower taxes during his tenure in the Governor’s mansion. A man who took $300 million out of the Philadelphia public school system; and spent $400 million to build a new prison; all while signing a tax break that was estimated to cost the state coffers $600 to $800 million.

And then Candidate Peduto wanted to give him control of the City’s pension system, which – as of the writing of the Trib article – has $673 million in assets.

Who wants to bet that money wouldn’t have been used for pensions?

Meanwhile, in a seemingly unrelated story, Puerto Rico is begging Congress to let it declare bankruptcy and restructure its $74 billion in debt. I say “SEEMINGLY unrelated”, because it turns out that 1 out of every 5 bond funds, which administrate many municipal 401Ks, are the holders of this debt. And THAT should make anyone who is now being told that their State or local job now comes with a 401K, instead of a pension, VERY worried.

“Defined benefits” are just that for a reason. Whether you take a lower salary, or have a portion of your salary deferred; the intention is that you have those funds available when you are ready to retire.

It’s not a giveaway, it’s not “welfare” or an “entitlement”; just like life insurance, it’s your money being returned to you at a later date. And a 401K ain’t that.

2008 isn’t that far in the past. I remember sitting in an office with a woman whose retirement was in a 403(b), which is the equivalent of a 401(k), but for nonprofits. And she was upset; boy, was she upset. The stock market kept falling and falling, and she was watching her retirement get smaller and smaller.

And I remember laughing. She turned to me and asked, “What in the world about this could be funny?”; and I replied, “Absolutely nothing. In fact, I feel really bad for you. But I wonder if this will be the wake-up call for a lot of people to realize that tying your retirement to the stock market is a fool’s errand.”

Apparently not if you’re Mayor Bill Peduto.

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Strong and pointed words, those!

At the Comet we are no experts on pension financing, but we have a few questions about the subject matter:

1) Right now the City operates the traditional “Defined Benefit” retirement plans. And the strategy with which the trustees of the pension fund — those including union representatives — utilize to be able to pay those “defined” future benefits is Investment in the market!! So if the market does anything other than quite well, that fund and / or the whole City head to bankruptcy court to fight over the scraps, including the taxpayers’ physical assets like the water system and parking facilities, while those “guaranteed” or “defined” benefits are every bit as jeopardized in a tug-of-war with bondholders and other creditors. Aren’t they?

So our stars are hitched to the market either way — but at least with Defined Contributions, everybody is granted a little more real-world certainty with which to plan, not to mention the possibility of making out a lot better if America happens to thrive economically. Right?

2) In the Tribune-Review article which broke this, the Firefighters are quoted as haggling over overtime and their ability to negotiate enhancements instead. Not the defined benefits / contributions debate. Should we take this to mean that the workers who some local Party members are purporting to champion do not truly oppose the switch, or at least are not of one mind? Do the objections arise truly from local politics?

3) How much would the move from Defined Benefits to Defined Contributions be likely to profit the City, or let’s even say the County? It is one thing to say this may not hurt, but how much would it be likely to actually help?

Your input would be very much appreciated!

2 thoughts on “Peduto Stance on Pensions Ruffles Party Feathers

  1. MGG

    Some with long memories might say that since Bill started out as a Republican (and for all intents his COS and perhaps closest adviser still is, and Fitz sure acts like one), then he’s just showing his true colors. But I prefer to continue to give Bill the benefit of the doubt and conclude that he’s just making a hard choice–continue down a path that threatens to bankrupt the city and state, or try something new–and that’s he’s also not afraid to challenge the unions when necessary, unlike most of the fretful party leaders/followers. Also, this defined contribution pension shift has been preached for years via innumerable powerpoint presentations in the evening classrooms of the Heinz School and GSPIA (of which Bill is a grad) and at public policy symposia. Bill has apparently internalized the teachings.

    Reply
    1. MH

      At the very least, I trust the other players less. The defined benefit plan isn’t necessarily better for all employees. What about somebody who switches employers often? Also, things like the Puerto Rico argument in the letter up there suggest an unclear understanding of anything financial. If a government like Puerto Rico defaults, the biggest pension losers won’t be the holders of 401k plans invested in bonds sold by Puerto Rico. The biggest risk is carried by the public employees of Puerto Rico with a defined pension plan. I don’t know if any have actually lost part of their pension yet, but it has happened to a very large number of retirees holding private-sector defined benefit pensions. There is a federal insurance company for that, but it only protects up to a certain amount.

      Also, the Pittsburgh set up with multiple, separate funds is too small to protect from stock market crashes as mentioned in Bram’s first point.

      Reply

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