Misperceptions on benefits City workers health and pension funds are in line with standard costs and managed competently.

Posted: August 10, 2009

An old adage holds that nothing is so absurd that people won't believe it if it's repeated enough. Sadly, it's proven true every time Philadelphia city workers' contracts come up for negotiation.

Every few years, the twin misconceptions that union employee benefits are too generous and are wastefully administered are repeated and repeated until people start believing them. But a closer look at the benefits provided and the trust funds that administer them shows just the opposite.

The benefits provided to unionized city employees are carefully administered by independently established common-law trusts, also known as funds, that are legally and financially separate from the unions. They are run by city and union trustees whose fiduciary responsibility is exclusively to the employees and their families - not to the unions or the city. No money is ever transferred from the funds to any union entity.

The funds' administrative costs have held steady at about 3 percent annually. Independent yearly audits have found that they are well-administered.

The funds regularly put the benefits out to competitive bidding. They also pursue targeted wellness and cost-containment programs aimed at reining in expenses and achieving better health outcomes. And they purchase prescription-drug and health benefits coverage from one of the country's largest health-care coalitions, resulting in deeply discounted benefits.

The current system is actually the result of a change that the city initiated. It replaced a system in which the city paid for a certain level of benefits regardless of the cost. Since 1992, the unions and the city have instead negotiated a given level of city support for benefits, in what is known as a "defined contribution" plan.

The city provides a fixed amount of money for benefits for each member of the four unions. If the cost of benefits goes up during the period of the contract, the funds still must live within their means and adjust the level of benefits if necessary.

The benefits provided to Philadelphia's employees are not out of line with other local and county entities. In addition, Philadelphia offers only short-term postretirement coverage to its civil servants. Many other municipalities offer lifetime health benefits to their employees.

It is important to remember that benefits make up just a part of the compensation the city negotiates with its union employees. Offsetting rising health-care costs are the millions the city saved by not giving raises to non-uniformed employees last year.

And it should be noted that national averages are not a helpful yardstick for measuring either government or private-sector employee benefits in Philadelphia. The market for health coverage in the Delaware Valley is not competitive given the dominance of a single health insurer, Independence Blue Cross. Cost trends in the area are always inconsistent with - and higher than - those of any other region of the country.

What the city contributes to the funds is directly related to what the funds pay for benefits. There is no waste, and the union funds account for every penny - something the city does not do in the case of its nonunion employees.

In fact, this year, one of the unions faced a choice of either cutting benefits or increasing contributions from members to cover rising health-care costs. Some of its members now have health-insurance premium payments deducted from each paycheck.

Meanwhile, the city is bearing the entire additional cost of providing the prior level of health coverage to its nonunion employees this year. The additional cost to taxpayers is more than $6 million.

Misconceptions about the pension plan for city retirees are also widespread. Let's separate fact from fiction there, too.

A recently released Pew study concluded that Philadelphia city workers' pension benefits are not out of line with those of other public employees. The study found the city's pension fund to be in dire condition due to the city's systematic underfunding of it, not because the pension benefits are too high.

The city's pension plan provides only modest benefits, and it lacks important safeguards such as cost-of-living adjustments.

The truth is that the funds' steady and prudent administration of reasonable benefits for the city's unionized workforce serves the employees and the citizens of Philadelphia well.

Cathy Scott is president of District Council 47 of the American Federation of State, County and Municipal Employees (AFSCME). Bill Gault is president of Local 22 of the International Association of Firefighters.

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