SITTING IN HIS usual booth at the Palm Restaurant in Center City, former labor consultant and City Council candidate Bill Rubin munches a lobster salad and explains the abiding appeal of pensions for a unionized workforce. “The last thing our people want is to be involved in anything where the market dictates to them what their retirement earnings are,” Rubin says. For public employees, a pension is the ultimate security blanket, and they have no intention of letting go, not now and not in the future: “They know if they work for a certain number of years, they’ll get a set dollar figure for the rest of their lives and not have to worry about whether IBM is up or down.”
Outside the comfy embrace of government employment, of course, that type of security is an anachronism. In the private sector, people change jobs and even careers so frequently that a retirement funded by a single employer has become an alien concept, particularly in white-collar settings. (Today, fewer than 20 percent of private-sector workers have pensions.) For earlier generations, though, a pension plan was a standard perk, in government and out. Six out of every 10 Americans were covered by a pension plan in the 1960s, and the social consensus was that pensions were a clear good.
And indeed, when run responsibly, pension systems can provide comfortable retirements without sinking the companies or governments that manage them. Pensions are funded through a combination of employee and employer contributions, which are pooled into one big fund and invested in the markets. Investment profits are plowed back into the fund, and pensioners generally get a fixed benefit—usually a percentage of their former salary—from the day they retire until the day they die.
Public-employee pension plans started out simply enough, first covering only retired police officers and firefighters. By 1916, most big cities offered pensions for all their workers. In those days, the Philadelphia benefit was capped at half an employee’s final salary. Given the modest salaries of the time, a city’s liabilities were relatively contained.
All that changed when municipal workers won the legal right to form bargaining units in the late 1950s and early ’60s. Here in Philadelphia, unions and politicians alike immediately recognized the clout that organizations comprising thousands of city workers could wield at the polls, and that power inevitably spread to the negotiating table.
Public-sector unions have a special kind of leverage. Unions in the private sector—the Auto Workers or United Steelworkers, say—can’t win better wages and pension benefits simply by putting political pressure on the local mayor. Nor could those unions vote out their boss, the company CEO. Municipal unions, on the other hand, can do both. In their heyday, the leaders of public-sector unions could walk into the mayor’s office and give its occupant a stark choice: Accede to our contract demands, or our members will punish you and your allies at the polls. If that didn’t work, strikes were threatened. “One word from me and the traffic lights don’t work, the bridges don’t open, the trash isn’t collected and the heat in all the city buildings is cut off,” legendary Philadelphia labor leader Earl Stout said in 1975, amid contract talks with Mayor Frank Rizzo.
Rizzo caved, just as James Tate had before him. Under those two mayors, the city’s newly formed municipal unions won full control over city-funded health insurance plans, beefy salary hikes and, of course, major concessions on pensions. For the politicians, pension give-ins represented the ultimate Wimpy option, as in “I’ll gladly pay you Tuesday for a hamburger today.” The promises Tate and Rizzo made had almost no impact on their administrations. The deals made sense for the unions as well, who knew that once pension benefits are granted, they can’t be revoked.
Consider the example of John Keyser. Barely 20 years old when he was hired in 1974, Keyser was actually eligible to retire, with full pension benefits, the year he turned 45. (Plenty of cops and firefighters have done exactly that: worked for 25 years, got a lifelong pension, and then began a second career, with a second income.) By staying on the payroll until he was 55, Keyser was able to retire with a bigger pension, one roughly equal to 88 percent of his average salary during his years on the city payroll.
Keyser was also enrolled in DROP, the pension program that pays retirees large lump-sum amounts the day they leave city service. As a well-paid firefighter, Keyser had a hefty DROP payout: about $200,000. “I feel blessed and lucky that I’m able to collect this,” Keyser says. “I know lots of guys who don’t have any pensions.” He should feel lucky. If Keyser lives to 75.3 years old—the average for an American male—the City of Philadelphia will have paid him a minimum of $1.2 million in retirement. If Keyser, who’s a healthy man, makes it to 85, that figure swells to $1.7 million.
Now consider the fact that there are more than 12,000 former firefighters and police personnel and their beneficiaries receiving city pension payments under the Tate/Rizzo plan, and it becomes easier to understand why the city can’t afford to keep its libraries open on a dependable schedule.