Part of Chester, Pennsylvania, is seen on Oct. 8, 2020.
Chester may have to declare bankruptcy as police pension costs rise, says the state-appointed receiver
The city's police pension fund has less than four months of benefits left.
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Kenny Cooper/WHYY
David Wilson / Creative Commons via Flickr
Part of Chester, Pennsylvania, is seen on Oct. 8, 2020.
The office of the state-appointed receiver tasked with rescuing the fiscally distressed city of Chester is raising new concerns about the nearly depleted police pension fund, which has less than four months of benefits left.
An internal investigation has found documents that support the conclusion that Chester’s pension board and city officials took actions back in 2009 to make the pension calculation easier to manipulate.
“The city’s pension board was improperly using a pension calculation that allowed police officers to spike their pension. These documents also raise new concerns about whether the pension board at that time and other city officials truly fulfilled their fiduciary responsibilities,” receiver Michael Doweary said in an interview.
Because of that, the receiver’s team expects to begin talking with retirees this month about their benefits and the possibility of recouping overpayments. However, Chester’s fiscal emergency is worsening, and the receiver’s office is looking at all options.
“There’s a lot of significant action that we’re going to need to take in order to try and get the city back on its feet — and bankruptcy has to be on the table as part of those considerations. So it’s not there to scare anybody, but that’s just really an honest assessment of Chester’s situation,” said Vijay Kapoor, chief of staff to the receiver.
In 1995, Chester’s financial difficulties led it to enter the state’s Municipalities Financial Recovery Act, or Act 47, process. However, the situation never improved; rather, the problems continued to intensify. In 2020, Gov. Tom Wolf declared a “fiscal emergency” in Chester, and the city was placed under receivership.
Chester’s receiver has categorized the city as having the worst pension and retiree health care funding situation of any city in Pennsylvania. In 2021, Chester spent more than $14 million — more than 25% of its entire general fund budget — on pension and retiree health care costs alone.
The receiver has been keeping a close eye on the pension funds of late. In October 2021, the receiver issued an order directing Chester’s pension board to change the way it calculated police pensions and to use the average of the last three years of salaries to determine benefits, rather than the last 12 months.
After 20 years in Chester, a police officer is entitled to a full pension payout. The belief is that the 12-month system previously allowed police officers hired after Jan. 1, 1988, to “make a run.”
“With spiking and using a one-year figure, there’s an incentive for an officer to take every overtime assignment that they can,” Doweary said.
Taking on extra shifts can be expected regardless of the pension calculation, though it is typically difficult to sustain. But officers in Chester did not have those difficulties under the previous calculation, the receiver said — which led to some pretty large payouts.
“Some police officers have been able to retire as young as 38 years old with $100,000-a-year-plus pensions. There’s no question that this severely hurt the pension fund, and we’re in a process of calculating by how much,” Doweary said.
An actuary is still recalculating pensions for current and future retirees, so the total amount of money the city has overpaid has yet to be determined. On an individual basis, there have been significant reductions.
One unnamed officer was set to receive $110,000 a year upon retirement under the old calculation. With the new change to a three-year salary average, that number has dropped to $75,800 a year — a 31% reduction.
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