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Philadelphia Public Employees Retirement System

Website:

www.phila.gov/pensions/pages/default.aspx
Location:

Philadelphia, PA
Formation:

1957
Chairman:

Rob Dubow

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The Philadelphia Public Employees Retirement System creates and maintains a retirement benefits system for civilian public and quasi-public employees in the city of Philadelphia, Pennsylvania. The Retirement System also participates in substantial shareholder advocacy, leveraging its $4.9 billion in assets to push for left-of-center proposals in corporate board regulation, executive compensation, and political spending disclosures.

In 2016, after a history of mismanagement, the Retirement System faced a crippling deficit, leading the system’s own chairperson, Rob Dubow, to call the it the worst-performing pension fund in the United States.

History

The Public Employees Retirement System was created by the Philadelphia Board of Pensions and Retirement after the Philadelphia Home Rule Charter tasked the Board with creating and maintaining a sound retirement benefits system for all city employees in 1957.1 Today, the nine-member Board of Pensions approves benefit applications and serves as a trustee to the Retirement System to ensure that the system maintains financially sound for current and future benefit recipients.2 The Retirement System is run by an executive director and staff, in addition to being overseen by the Board of Pensions which develops policies to ensure that the System remains financially solvent.3

Today, the Retirement System provides benefits to civilian public employees, in addition to police officers and firefighters.4 The System also serves quasi-public employees in the Philadelphia Parking Authority, the Municipal Authority, and the Housing Development Corporation.5

Shareholder Activism

The Retirement System’s primary function is paying out benefits for Philadelphia city employees. Nonetheless, with $4.9 billion in assets under management, the Retirement System is also actively involved in left-of-center shareholder advocacy, often known by the acronym “ESG” for “environmental, social, and governance.”

Board Structure

In 2017, the Retirement System submitted a shareholder proposal to Cognex Corporation, a visual systems manufacturer, demanding that the company maintain lists of “qualified board candidates for future consideration, which includes candidates with diverse backgrounds.”6 The policy was part of a push aimed to increase board diversity, specifically gender diversity.7

In July 2019, the Retirement System filed a similar shareholder proposal at Sinclair Broadcast Group, a company angling to become one of the largest media companies in America.8 The Retirement System argued that gender diversity and ethnic diversity on corporate boards is connected to the financial value of a company.9 The Sinclair board opposed the proposal, and shareholders rejected it.10

The Retirement System has also supported resolutions to give shareholders larger control over corporate boards.11 In 2016, the Retirement System submitted a resolution at Chipotle with the support of New York City Retirement Systems and the United Auto Workers (UAW) Retiree Medical Benefit Trust.12 The resolution called for any shareholder or unlimited group of shareholders controlling 3% of Chipotle’s shares for at least three years to be able to nominate up to 25% of the company’s board members.13 Though the groups submitted a similar resolution which failed in 2015, the non-binding resolution passed with 58% of votes in favor of the proposal in 2016.14

Political Spending

The Philadelphia Public Employees Retirement System has also pushed for increased disclosure of political spending through the proxy voting process. In 2016, the Retirement System introduced a proxy proposal at Fluor Corporation, a Texas-based engineering firm, which would mandate regular disclosure of political spending.15 Though the Fluor board advised against the measure as a waste of company resources, the resolution succeeded with 52.5% of shareholders voting in favor of the measure during the 2016 proxy season.16 That same season, the Retirement System submitted three shareholder proposals related to political spending or lobbying at Fortune 250 companies alone.17 Between 2006 and 2016, the Retirement System submitted eleven shareholder proposals related to political spending at Fortune 250 companies.18

The Retirement System has participated in a large push with a number of other left-of-center shareholder advocacy groups to force energy companies to disclose both direct and indirect lobbying spending.19 The Retirement System filed a proposal at Chevron to mandate lobbying disclosures, arguing that Chevron has actively worked against proposals to curb climate change through its activity in the fossil fuel industry.20 The resolution was submitted at Chevron alongside climate-focused proposals from other left-of-center organizations, including shareholder advocacy group As You Sow and the United Steelworkers labor union.21

Executive Compensation

The Retirement System participates in shareholder advocacy regarding executive compensation. In 2018, the Retirement System submitted a shareholder resolution at Netflix which, if approved, would enumerate a claw-back policy for top executives.22 The policy encouraged Netflix to adopt a policy clearly stating when the company would recover incentive pay awarded to executives who engage in misconduct which damages the company’s reputation or violates the law.23

Shareholders ultimately rejected the proposal, with Netflix arguing that executives were already held to high enough standards, including those set on CEO and CFO claw-backs by federal law.24 The proposal was part of a large group of shareholder proposals on corporate governance filed by six different pension funds, including the $352.8 billion California Public Employees’ Retirement System and the $194 billion New York City Retirement Systems.25

Management Criticism

Until 2019, the Retirement System drew significant criticism for apparent mismanagement.26 The Board of Pensions, which is involved in the management of the Retirement System, came under fire for the introduction of the Deferred Retirement Option Plan (DROP).27 DROP rewards city employees with six-figure cash bonuses just for actively remaining in their positions for their final years before retirement, draining the pension fund of $1.5 billion over the course of 20 years.28 DROP was seen as posing an increasing threat to the pension fund, which has been substantially criticized for its being underfunded.29

Critics further accused the Retirement System of wasting tens of millions of dollars on “active” investment managers, finance experts who charged exorbitant fees while nonetheless making investment decisions that resulted in large financial losses.30 Meanwhile, neighboring Montgomery County’s investments averaged annual returns at over triple the rate of the Philadelphia Retirement System while relying on cheap, “passive” index trading done through computers.31 Until 2018, the Retirement System had had higher expenses than it did revenue for over 20 years.32

As a result, the Retirement System for years operated in a deep funding deficit. As of 2016, the Retirement System had a funding gap of $5.71 billion in actuarial liabilities, less than half of what it then owed pensioners.33 That same year, Rob Dubow, the director of finance of the City of Philadelphia and chairman of the pension fund board, called the situation “very bad” and estimated the Retirement System to be the worst performing pension in the entire United States.34 Over the course of the past several years, the Retirement System has recovered a bit, shedding underperforming fund managers, increasing its tax revenue, and increasing voluntary employee contributions.35

People and Funding

Investment income makes up a large portion of the Retirement System’s annual revenue.36 The Retirement System is led by a nine-person Board which develops and approves investment strategy, with the advice of various consultants, managers, and in-house investment staff.37 The Board is tasked with maintaining a 7.75% annual rate of return.38

The Retirement System has over $4.9 billion in assets as of 2017.39 The Retirement System is funded by the Municipal Pension Plan Funding Standard and Recovery Act of December 1984, and employees of the City of Philadelphia contribute a percentage of annual pay, which is varied based on plan membership.40 41 Members of the Retirement System who are quasi-public employees also pay a percentage of their annual pay into the fund.42

The board is led by a mixture of elected officials and other officials chosen by municipal labor unions.43 The City Solicitor and City Controller serve on the Retirement System board, in addition to union representatives from the Philadelphia Firefighters Union, the Fraternal Order of Police, and various chapters of the left-of-center AFSCME union.44

The Retirement System is currently directed by Francis X. Bielli, a Philadelphia-based lawyer.45 Bielli is one of the top ten highest-paid public employees in Philadelphia.46 Rob Dubow is the current chairman of the Retirement System.47 Dubow has also served as the Finance Director for the City of Philadelphia since 2008.48

References

  1. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  2. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  3. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  4. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  5. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  6. Campos, Roel C. “What Directors Need To Know In 2018 About Board Diversity.” Mondaq, March 12, 2018. https://www.mondaq.com/unitedstates/CorporateCommercial-Law/681556/What-Directors-Need-To-Know-In-2018-About-Board-Diversity.
  7. Campos, Roel C. “What Directors Need To Know In 2018 About Board Diversity.” Mondaq, March 12, 2018. https://www.mondaq.com/unitedstates/CorporateCommercial-Law/681556/What-Directors-Need-To-Know-In-2018-About-Board-Diversity.
  8. Mirabella, Lorraine. “Sinclair Broadcast Looks for Boost from Sports Betting, CEO Tells Shareholders.” baltimoresun.com. Baltimore Sun, July 1, 2019. https://www.baltimoresun.com/business/bs-bz-sinclair-broadcast-annual-meeting-20190606-story.html.
  9. Mirabella, Lorraine. “Sinclair Broadcast Looks for Boost from Sports Betting, CEO Tells Shareholders.” baltimoresun.com. Baltimore Sun, July 1, 2019. https://www.baltimoresun.com/business/bs-bz-sinclair-broadcast-annual-meeting-20190606-story.html.
  10. Mirabella, Lorraine. “Sinclair Broadcast Looks for Boost from Sports Betting, CEO Tells Shareholders.” baltimoresun.com. Baltimore Sun, July 1, 2019. https://www.baltimoresun.com/business/bs-bz-sinclair-broadcast-annual-meeting-20190606-story.html.
  11. Burr, Barry B. “Chipotle Shareholders Approve Proxy-Access Proposal.” Pensions & Investments, May 11, 2016. https://www.pionline.com/article/20160511/ONLINE/160519959/chipotle-shareholders-approve-proxy-access-proposal.
  12. Burr, Barry B. “Chipotle Shareholders Approve Proxy-Access Proposal.” Pensions & Investments, May 11, 2016. https://www.pionline.com/article/20160511/ONLINE/160519959/chipotle-shareholders-approve-proxy-access-proposal.
  13. Burr, Barry B. “Chipotle Shareholders Approve Proxy-Access Proposal.” Pensions & Investments, May 11, 2016. https://www.pionline.com/article/20160511/ONLINE/160519959/chipotle-shareholders-approve-proxy-access-proposal.
  14. Burr, Barry B. “Chipotle Shareholders Approve Proxy-Access Proposal.” Pensions & Investments, May 11, 2016. https://www.pionline.com/article/20160511/ONLINE/160519959/chipotle-shareholders-approve-proxy-access-proposal.
  15. Schnurman, Mitchell. “Shareholders Pushed Irving’s Fluor Corp. to Reveal Its Political Spending, and Here’s What They Found.” Dallas News. Dallas News, August 25, 2019. https://www.dallasnews.com/business/2017/03/14/shareholders-pushed-irving-s-fluor-corp-to-reveal-its-political-spending-and-heres-what-they-found/.
  16. Schnurman, Mitchell. “Shareholders Pushed Irving’s Fluor Corp. to Reveal Its Political Spending, and Here’s What They Found.” Dallas News. Dallas News, August 25, 2019. https://www.dallasnews.com/business/2017/03/14/shareholders-pushed-irving-s-fluor-corp-to-reveal-its-political-spending-and-heres-what-they-found/.
  17. Copland, James R. and Margaret M. O’Keefe. “Proxy Monitor 2016 Finding 3: Political Spending and Lobbying.” Manhattan Institute. 2016. https://www.proxymonitor.org/Forms/2016Finding3.aspx
  18. Copland, James R. and Margaret M. O’Keefe. “Proxy Monitor 2016 Finding 3: Political Spending and Lobbying.” Manhattan Institute. 2016. https://www.proxymonitor.org/Forms/2016Finding3.aspx
  19. Savage, Karen. “Shareholders Demand More Climate Disclosure as SEC Tries to Restrict Them.” Climate Liability News, January 10, 2020. https://www.climateliabilitynews.org/2020/01/10/shareholder-resolutions-sec-climate/.
  20. Savage, Karen. “Shareholders Demand More Climate Disclosure as SEC Tries to Restrict Them.” Climate Liability News, January 10, 2020.  https://www.climateliabilitynews.org/2020/01/10/shareholder-resolutions-sec-climate/.
  21. Savage, Karen. “Shareholders Demand More Climate Disclosure as SEC Tries to Restrict Them.” Climate Liability News, January 10, 2020. https://www.climateliabilitynews.org/2020/01/10/shareholder-resolutions-sec-climate/.
  22. Chmielewski, Dawn C. “Netflix Shareholders Raise Governance Issues During Annual Shareholder Meeting.” Deadline, June 7, 2018. https://deadline.com/2018/06/netflix-shareholders-raise-corporate-governance-issues-annual-shareholder-meeting-1202405005/.
  23. Chmielewski, Dawn C. “Netflix Shareholders Raise Governance Issues During Annual Shareholder Meeting.” Deadline, June 7, 2018. https://deadline.com/2018/06/netflix-shareholders-raise-corporate-governance-issues-annual-shareholder-meeting-1202405005/.
  24. Chmielewski, Dawn C. “Netflix Shareholders Raise Governance Issues During Annual Shareholder Meeting.” Deadline, June 7, 2018. https://deadline.com/2018/06/netflix-shareholders-raise-corporate-governance-issues-annual-shareholder-meeting-1202405005/.
  25. Kilroy, Meaghan. “Netflix Investors, Once Again, Seek Change in Proxy Access, Voting Rules.” Pensions & Investments, June 15, 2018. https://www.pionline.com/article/20180615/ONLINE/180619893/netflix-investors-once-again-seek-change-in-proxy-access-voting-rules.
  26. Cipriano, Ralph. “Philly’s Pension Board Is Finally Getting Its Act Together.” Philadelphia Magazine, May 30, 2019. https://www.phillymag.com/news/2019/06/01/philly-pension-board/.
  27. Cipriano, Ralph. “Philly’s Pension Board Is Finally Getting Its Act Together.” Philadelphia Magazine, May 30, 2019. https://www.phillymag.com/news/2019/06/01/philly-pension-board/.
  28. Cipriano, Ralph. “Philly’s Pension Board Is Finally Getting Its Act Together.” Philadelphia Magazine, May 30, 2019. https://www.phillymag.com/news/2019/06/01/philly-pension-board/.
  29. Cipriano, Ralph. “Philly’s Pension Board Is Finally Getting Its Act Together.” Philadelphia Magazine, May 30, 2019. https://www.phillymag.com/news/2019/06/01/philly-pension-board/.
  30. Cipriano, Ralph. “Philly’s Pension Board Is Finally Getting Its Act Together.” Philadelphia Magazine, May 30, 2019. https://www.phillymag.com/news/2019/06/01/philly-pension-board/.
  31. Cipriano, Ralph. “Philly’s Pension Board Is Finally Getting Its Act Together.” Philadelphia Magazine, May 30, 2019. https://www.phillymag.com/news/2019/06/01/philly-pension-board/.
  32. Cipriano, Ralph. “Philly’s Pension Board Is Finally Getting Its Act Together.” Philadelphia Magazine, May 30, 2019. https://www.phillymag.com/news/2019/06/01/philly-pension-board/.
  33. Greene, Kerima. “How to Save Philadelphia’s Pension Fund.” CNBC, February 24, 2016. https://www.cnbc.com/2016/02/24/how-to-save-philadelphias-pension-fund.html.
  34. Greene, Kerima. “How to Save Philadelphia’s Pension Fund.” CNBC, February 24, 2016. https://www.cnbc.com/2016/02/24/how-to-save-philadelphias-pension-fund.html.
  35. https://www.phillymag.com/news/2019/06/01/philly-pension-board/
  36. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  37. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  38. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  39. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  40. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  41. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  42. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  43. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  44. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  45. Weckerly, Anastasia. “Can You Guess Who Has the Highest Salary in Philadelphia?” NBC10 Philadelphia, April 8, 2016. https://www.nbcphiladelphia.com/news/local/can-you-guess-who-has-the-highest-salary-in-philadelphia/72899/.
  46. Weckerly, Anastasia. “Can You Guess Who Has the Highest Salary in Philadelphia?” NBC10 Philadelphia, April 8, 2016. https://www.nbcphiladelphia.com/news/local/can-you-guess-who-has-the-highest-salary-in-philadelphia/72899/.
  47. “City of Philadelphia Board of Pensions and Retirement Annual Report: Fiscal Year Ending June 30, 2017.” City of Philadelphia Board of Pensions and Retirement. 2017. https://publicplansdata.org/reports/PA_PHILADELPHIACITY-MPERS_CAFR_2017_152.pdf
  48. “Finance.” Office of the Director of Finance. City of Philadelphia. Accessed March 7, 2020. https://www.phila.gov/finance/about.html.
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Philadelphia Public Employees Retirement System


Philadelphia, PA