After spending more than three decades keeping order inside Philadelphia’s jails, Joseph Macy has two words to describe his career as a corrections officer: “Not fun.” He often worked double shifts, missing his kids’ school plays, baseball games, and other family occasions. More than once, he was stabbed and attacked by inmates.
“I was away from my family and risked a lot to make it work, pay the bills,” said Macy, 60.
In the last decade of his career, his base salary was in the $40,000 range, but he often more than doubled it with overtime pay. When he retired in 2017, Macy had accumulated so much overtime that he received a lump-sum pension bonus of $338,845 and started collecting an annual pension of $77,473 — $30,000 more than his final salary.
Macy is far from an outlier. An Inquirer review of city pensions and payroll data found 17 other municipal employees — from water-treatment managers to social workers — who left their jobs in 2017 and achieved something that seems illogical: By retiring, they guaranteed themselves a bigger paycheck each month than the base salary they earned going to work day after day.
In fact, the newspaper’s analysis shows that two-thirds of the 401 full-time municipal workers who started collecting a pension in 2017 had their retirement checks significantly boosted by overtime — on average 22 percent of their pensions are a direct result of overtime they logged in their final years. Together, it could add at least $17 million to the city’s pension obligations in the ensuing decades, according to the analysis.
“When overtime for any one person constitutes 20 percent of annual compensation, it says something negative about either the budget or management system, let alone that being the average,” said Kenneth Kriz, director of the Institute for Illinois Public Finance at the University of Illinois at Springfield, and one of four experts who reviewed the Inquirer’s findings.
City officials contend the cost estimates in the Inquirer’s analysis are inflated. They note that retiring employees have paid into their pensions and that offering overtime for current workers enables them to hire fewer staffers, saving money on salaries and benefits. They also point out that a hybrid pension plan instituted for new workers in 2016 establishes a $65,000 cap on the yearly income that can be applied toward their pension calculation, reducing long-term costs.
The practice of allowing overtime to inflate retirement benefits is often called pension “spiking” — and it’s not a problem unique to Philadelphia. Many states and cities have tried to curb it in recent years. After the stock-market crash a decade ago sent state and local pension fund asset values plunging from $3.15 trillion to $2.17 trillion, several states moved to restrict or eliminate the use of overtime in pension calculations, according to a report published in December by the National Association of State Retirement Administrators.
“It’s a problem everywhere,” said Pennsylvania Auditor General Eugene DePasquale, who has been critical of municipalities that let workers include overtime earnings in their pension calculations. He was an advocate of a state law passed last year that says some commonwealth employees hired after Jan. 1 can only apply overtime equal to 10 percent of their base salary in figuring their pensions.
According to the Inquirer’s analysis, the overtime padding for Philadelphia retirees from 2017 is likely to cost the city’s already depleted pension fund $17.2 million more — or as much as $28 million, depending on stock-market returns — than if overtime had not been included in pension calculations. And that’s not counting the six-figure lump-sum pension bonuses many of those city workers were paid — and that were also inflated by overtime.
For its review, the Inquirer enlisted actuary and pension expert David McCarthy at the University of Georgia to determine the long-term costs of overtime. It also then shared the results and sought feedback from other experts, including Kriz and the American Academy of Actuaries.
The analysis applied to retirees among the city’s 18,000 blue-collar and white-collar union workers. It included some 2017 retirees who had jobs that did not qualify for overtime. It doesn’t include police and firefighters, who can earn overtime but whose labor contracts bar them from including it in pension calculations.
The Inquirer asked for the records after it learned last year that Joy Hurtt, a youth detention counselor whose base salary is $49,551, is in line for a $387,055 pension bonus payment and an annual pension of nearly $90,000 when she retires in 2021. Both numbers spiked because of the overtime Hurtt claimed, often doubling her salary.