Scranton officials improperly doubled pension payments to city workers

New report says ‘the transactions surrounding the doubling of pension payments has revealed a disregard for the applicable laws governing pension plans.’ 

Scranton’s double-pension payments – offered as a retirement incentive to 35 city workers – were improperly implemented, and cost the city $2.9 million in unapproved costs.

State Auditor General Eugene DePasquale released a report this morning which found “the transactions surrounding the doubling of pension payments revealed a disregard for the applicable laws governing pension plans by the officials charged with fiduciary responsibility for the Plan – the Mayor, City Council, and the Pension Board.” 

Then Mayor Chris Doherty left office in 2014. The Auditor General’s office didn’t immediately respond if any Council or Board members from that time are still in office.   

Scranton offered 25 non-uniform employees double-pensions in 2002 in an attempt to address the city’s budget. The city is in Act 47 – Pennsylvania’s distressed cities program – and wanted to eliminate jobs as part of its recovery plan. In 2007, after a lawsuit, an additional 10 city employees were deemed eligible for the 2002 incentive and granted double-pensions.

Any modifications to city pension plans have to go through a process. First, a cost study to determine how the proposed changes will affect the plan must be done and reviewed by plan administrators. Then City Council and the Mayor must approve an ordinance outlining the modification and eligibility. At that point, the city makes the retirement offer and the Pension Board reviews retirees individually to confirm eligibility before qualified people start to get the new pensions benefit.

In Scranton, the process went differently.

The report says workers retired with the promised benefit before the city did a cost study or passed the required ordinances authorizing the doubling of pensions. The study was completed later, but it does not appear the Pensions Board or City Council ever reviewed it, according to the Auditor General’s investigation.

Four separate ordinances related to the 2002 retirement incentive were passed – but not until 2003 and  none “authorized doubling of benefits,” the report says.

There is no record of the Pension Board reviewing eligibility other than a couple letters from the Pension Board secretary – herself a recipient of the double-pension benefit.

Investigators found no record of the Pension Board approving the payment increases.

And one of the recipients of doubled pensions does not qualify for it, according to the report.

 

(Source: Auditor General)

It’s critical to note that Scranton’s non-uniform pensions plan is woefully underfunded.

So much so that the Auditor General has previously identified it as a potential trigger for municipal bankruptcy in the next few years.

It was in better shape when the first set of double-pension workers retired in 2002. At that time, it was 78 percent funded. Today, the plan is 23 percent funded, qualifying it as severely distressed.

And there are 121 beneficiaries receiving $1.1 million in annual payouts; the 35 retirees receiving double-pension payments account for 53 percent of the total.

While many factors have contributed to the city’s dwindling pension funds, DePasquale said the double-pension payments at least partially contributed to the current financial distress of the non-uniform fund.

The report recommends reviewing who is eligible for the 2002 incentive, whether the city is obligated to continue the double payments, and whether the city should recoup any of the money it has paid to the retirees. Further recommendations include following the proper protocols for any future pension amendments. 

Keystone Crossroads has requested minutes and audio recordings from Scranton’s City Council meetings from 2002.