Chester May Have To File For Bankruptcy As Police Pension Costs Rise, State-Appointed Receiver Says
The city police pension fund has less than four months of benefits.
Kenny Cooper / WHY
The office of the state-appointed receiver tasked with saving the tax-troubled city of Chester is raising new concerns over the near-depleted police pension fund, which has less than four months of benefits.
An internal investigation found documents that support the conclusion that the Chester Pensions Board and city officials took action in 2009 to make the pension calculation easier to manipulate.
“The town’s pension council was wrongly using a pension calculation that allowed the police to increase their pensions. The documents also raise new concerns as to whether the then pension board and other city officials actually fulfilled their fiduciary responsibilities, ”receiver Michael Doweary said in an interview.
Because of this, the escrow team plans to start talking to retirees this month about their benefits and the possibility of recovering overpayments. However, Chester’s budget emergency worsens and the Escrow Office is examining all options.
“There are a lot of important steps we will need to take in trying to get the city back on its feet – and bankruptcy needs to be on the table as part of those considerations. So it’s not here to scare anyone, but it’s just an honest assessment of Chester’s situation, ”said Vijay Kapoor, chief of staff of the receiver.
In 1995, Chester’s financial difficulties led him to enter the state’s Municipalities Financial Recovery Act, or Act 47, process. However, the situation never improved; on the contrary, the problems continued to intensify. In 2020, Governor Tom Wolf declared a “tax emergency” in Chester, and the town was placed in receivership.
The Chester Receiver classified the town as having worst pension funding and retiree health care of any city in Pennsylvania. In 2021, Chester spent more than $ 14 million, or more than 25% of his entire general fund budget, on retirement and retiree health care costs alone.
The escrow has been keeping a close eye on pension funds lately. In October 2021, the Receiver issued an order directing the Chester Pension Board to change the way it calculated police pensions and use the average of the last three years of salary to determine benefits, rather than the 12 last months.
After 20 years in Chester, a police officer is entitled to a full pension. The belief is that the 12-month system previously allowed police officers hired after January 1, 1988 to “race”.
“With the increases and the use of a one-year figure, an officer is encouraged to take any overtime assignments he can,” said Doweary.
One can expect to take additional shifts regardless of the pension calculation, although it is generally difficult to maintain. But Chester’s officers didn’t have these difficulties in the previous calculation, the receiver said – which led to some pretty large payments.
“Some police officers were able to retire at age 38 with a pension of over $ 100,000 per year. There is no doubt that this has seriously affected the pension fund, and we are in the process of calculating by how much, ”said Doweary.
An actuary always recalculates the pensions of current and future retirees, so the total amount of money the city has overpaid has not yet been determined. On an individual basis, there have been significant reductions.
An anonymous officer was to receive $ 110,000 per year upon retirement under the old calculation. With the new change to a three-year average salary, that number has fallen to $ 75,800 per year, a reduction of 31%.