Experts: Port Authority retiree cost cuts critical
Thirty-five of Port Authority’s top 50 pension recipients are former managers who helped lead the agency that now faces unprecedented job and service cuts and skyrocketing pension costs, financial records show.
“Some things aren’t sustainable,” Bob Jazwinski, president of the Pennsylvania Institute of Certified Public Accountants, said of Port Authority of Allegheny County’s runaway retiree costs.
Reducing pension and retiree health-care costs will be discussed during contract talks between Port Authority and Amalgamated Transit Union Local 85, the agency’s largest union whose deal expired on June 30. Pension costs have soared 1,123 percent since the 2005 fiscal year, from $3.1 million to $37.9 million of a $333.1 million operating budget.
Leading the list of pension recipients is the authority’s former CEO Paul Skoutelas, who receives a yearly pension of more than $83,000, and its retired chief financial officer, Claudia L. Allen, who gets more than $70,000.
Pension costs will be 34.5 percent of Port Authority’s $109.8 million payroll in the coming year, a number Jazwinski found troubling. A sound plan is to keep pension costs between 5 percent and 10 percent of payroll, he said.
As a group, former drivers, mechanics and other workers represented by the union collect the agency’s largest average pensions, data show. ATU Local 85 pension recipients outnumber management retirees seven to one.
County Executive Rich Fitzgerald, Gov. Tom Corbett and PennDOT Secretary Barry Schoch are involved in the contract talks with leaders of the 2,200-member union and management. Representatives are scheduled to meet on Monday.
Port Authority records show there are 3,294 people on the agency’s three pension plans. In addition to nearly 2,600 retirees, 700 other recipients include widows and widowers of former workers and ex-wives receiving money through court orders.
Pension recipients are to receive more than $65 million this calendar year — $37.9 million from Port Authority’s budget and the rest from money in the pension plans, records show.
“More and more, it’s becoming an agency that’s just there to pay out benefits and not run the public service that it’s tasked with running,” said Eric Montarti, a senior policy analyst at the Castle Shannon-based Allegheny Institute for Public Policy.
ATU Local 85 retirees will collect an average pension of $23,800. The average payout to non-union retirees, including management and police is $21,142. International Brotherhood of Electrical Workers Local 29 retirees, most of them former customer-service workers, will receive an average pension of $15,213. Jazwinski said the payments don’t appear out of line. A past agreement allowing many workers to begin collecting full pensions after 25 years of service, regardless of age, and the sheer number of recipients present challenges, he said. Layoffs planned for September are expected to leave Port Authority with about 1,600 active workers and 3,300 retirees.
The agency can’t cut benefits to current retirees but could reduce the financial burden of future pensions, officials said.
“I’d recommend that they move to a 401(k)-type plan for all new hires,” Jazwinski said, noting that that would reduce costs in years to come because those retirement contributions would be set at a certain percentage of workers’ earnings instead of tied to fluctuating market conditions and pension demands.
In addition to his annual pension payout of $83,750, Skoutelas, 58, of Mt. Lebanon receives an early-retirement supplement of $6,000 a year through June 2014. Almost 1,400 retirees receive similar payments.
Skoutelas, who did not return calls, left Port Authority in September 2005. The agency began cutting pension checks to him three years earlier through the controversial and since-disbanded Deferred Retirement Option Program, known as DROP. It placed pension money into an interest-bearing account that enabled him to receive a $380,213 lump-sum payment when he retired.
Skoutelas worked two stints at Port Authority totaling 19 years. He retired with about three decades of service by paying $181,530 to get credit for time worked at other transit agencies. Port Authority reimbursed that expense through terms of a contract signed in 2000. The agency has since eliminated such “buybacks,” except for military service.
Skoutelas originally received a pension of more than $9,000 a month, with about a third of the money coming from a special bank account that provided payments beyond maximum pension limits. Port Authority closed the account five years ago, eliminating the boost.
Like several top pension recipients, Skoutelas has continued to work since retiring from Port Authority. Based Downtown, he is a senior vice president and transit market leader for the international engineering and planning firm Parsons Brinckerhoff.
Allen, 63, of Stanton Heights, who retired in October 2010, is to receive the agency’s second-largest pension this year at $70,382. She works as a consultant at the Regent Square accounting firm Crawford Ellenbogen LLC, headed by former Port Authority board member Joan Ellenbogen.
Former Chief Operating Officer Stephen R. Banta, who retired in May 2007, will collect the agency’s third-largest pension at $66,725. He has held several transit jobs since leaving Port Authority. In March, he became CEO of the Valley Metro Regional Public Transportation Authority and Valley Metro Rail in Phoenix.
“Pensions were normal for big-city transit systems when I left Port Authority 16 years ago,” said former agency CEO William W. Millar, who recently retired as executive director of the Washington-based American Public Transportation Association. He receives Port Authority’s fourth-largest annual pension at $63,107.
“From a national perspective, there increasingly is pressure on public agencies to reduce costs, and it’s not unusual to try to do that by reducing the costs of pensions,” Millar said.
Millar said the most common approach is to close off more costly pension plans to new hires and offer them a 401(k)-style plan — something APTA did during his tenure there to achieve long-term savings. He said there wasn’t blowback: “Younger people don’t value pensions the way old guys like me did. They don’t expect to retire from the same place they started. They change jobs like I change clothes, so a 401(k) works better for them because it’s more portable.”
Former Port Authority planning director Allen D. Biehler, who receives the eighth-largest pension at $60,193 a year, became Pennsylvania’s Secretary of Transportation under former Gov. Ed Rendell.
“I think in the last couple of union contracts there has been some significant progress made in reducing legacy costs,” Biehler said, noting that minimum years-of-service and age-at-retirement requirements increased and that decreased the agency’s pension obligations to newer retirees.
“Whether the current structure is too generous, I don’t know,” he said. “The current administration got this problem from previous times and it sits there as a real issue to deal with.”
In recent years, management, police and unionized customer service workers eliminated pensions for new hires, offering a 401(k)-style defined-contribution plan instead. Current workers in those groups are allowed to switch to the defined-contribution plan, but only 31 workers have done so, Port Authority said. The three groups employ 360 people.
“It’s something we certainly have to look at,” Fitzgerald said.
Fitzgerald said he wants at least $15 million in concessions from ATU Local 85, along with $10 million in concessions from management, with the hope that it will spur the state to provide $30 million to $35 million. That could help close a deficit and prevent 35 percent service cuts and more than 500 layoffs scheduled for September.
Tom Fontaine is a staff writer for Trib Total Media. He can be reached at 412-320-7847or [email protected].