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Municipalities don’t want their pension funds raided to help those in need

By   /   September 27, 2012  /   No Comments

By Eric Boehm | PA Independent

West Newton Borough in Westmoreland County has one of the best municipal pension systems in the state.

HARRISBURG — West Newton Borough residents have fully funded their municipal pension plan and won’t take kindly to bailing out other municipalities, says Mayor Mary Popovich.

“I think people and taxpayers are getting tired of paying for other people’s mistakes,” she said.

West Newton’s plan is funded at better than 160 percent for its nearly 20 public employees, including police and firefighters. But the borough in Westmoreland County could find its savings raided, if the state decides to consolidate local pension funds to help financially struggling municipalities.

Pennsylvania’s roughly 2,600 municipal pension systems are about $6 billion in the red, while two major state pension systems have a combined unfunded liability of more than $40 billion.

Auditor General Jack Wagner, who by law must audit the state’s municipal pensions annually, called for the consolidation effort last week, arguing that it would lead to higher investment returns and less risk for taxpayers.

WAGNER: Action must be taken to save Pennsylvania’s financially strapped municipal pension plans.

“Pennsylvania has too many small and underfunded municipal pension plans that could cost taxpayers millions of dollars to maintain,” Wagner said. About 36 percent of the state’s municipal pensions lack adequate funding.

But how or whether these pension funds are consolidated will be determined by the lawmakers.

One approach could combine assets and liabilities of different funds into a single account to pay for the massive unfunded liabilities in other places, such as Pittsburgh, which has a net unfunded liability of more than $360 million. Pittsburgh is one of the state’s “moderately distressed” plans, because it has only 62 percent of the assets needed to cover liabilities, according to a state Public Employee Retirement Commission report released in July.

Wagner told PA Independent on Thursday that he does not support a full consolidation, because rolling Pittsburgh’s $360 million pension debt with West Newton’s $300,000 surplus is simply not practical.

Instead, Wagner suggested creating a dozen or more plans that grouped municipalities of the same size or class.

The idea of pension fund consolidation must be part of the upcoming legislative session, said Wagner, as Gov. Tom Corbett and some members of the General Assembly are aiming to address pension reform at the state and local level.

Dave Zimmerman, chairman of the East Earl Township Board of Supervisors in Lancaster County, said consolidating the funds would be “a little unfair.”

“We’ve managed ours well and others didn’t,” he said Thursday. “It would concern us.”

East Earl has one of the best funding ratios in the state, with nearly three times the necessary funds to cover about $500,000 in pension liabilities.

A system of voluntary partial-consolidations exists through the Pennsylvania Municipal Retirement System, which was created in 1974 to pool the administrative cost of municipal pension plans.

While the 950 plans that are members in PMRS share administrative costs, they keep separate accounts for assets and liabilities and the arrangement is entirely voluntary.

James Allen, secretary for the PMRS, said he favors voluntary consolidation except in cases where municipal pension plans have fallen into severe distress — the state’s name for funds with less than 50 percent of the assets needed to cover liabilities.

“First, prevent the problem from getting worse. Put any new hires in a consolidated professionally administered plan,” he said. “Then address the negative cash flow of the distressed plans.”

Jim McAneny, executive director of PERC, which oversees and analyses the state and local pension plans, has long supported consolidating the multitude of local plans.

The state gives more than $200 million to local pension plans every year — funds that could be saved because most of it is used to pay for redundant administrative costs that would be eliminated if funds were consolidated, McAneny said.

But with a long history of local control in Pennsylvania, any changes only will come at the intersection of what is practical and what is politically possible, he said.

Contact Eric Boehm at [email protected] and follow him on Twitter @PAIndependent.