Pension Change: Present or Problem for Peduto?

Pension Change: Present or Problem for Peduto?

piggy bank

Mayor Ravenstahl has just handed the incoming Mayor a gift in the form of lowering the projected rate of return used for the pension plan investment portfolio from 8 percent to 7.5 percent. The question is whether the incoming Mayor will view this gift as a good thing or a bad thing.  According to news accounts, the drop in projected returns will result in a $5 million annual increase to the City’s required contribution to the pension funds.

In a budget of well in excess of $400 million, the pension contribution hike represents a little over one percent of the planned outlays.  Surely, some careful attention to spending and hiring could save $5 million.

But the larger point is that reducing the projected rate of return on pension funds has been recommended by pension analysts for some time.  It needs to happen. Getting it out of the way now might turn out to be a positive for the Mayor-elect.  This is a sensitive matter that will not have to be dealt with in the next four years at least.

Some game playing was probably involved in that the current Mayor adamantly opposed this move a year ago. He and other members of the pension trust board did not even want to study it with the Mayor noting that more money (estimated at $9.3 million then) would have to be found and opining “to me, this is where this is going, and I’m not going to do it”.

Nonetheless, the move, whatever the Mayor’s motive, should be allowed to stand because it is the right thing to do.  The incoming Mayor can blame the pension return rate change and the necessary spending cuts he will have to find on his predecessor.  And in the long run the City’s finances will be better off for it. And that should be the criteria used in thinking about this. Certainly, the financial oversight groups, ICA and Act 47, should view this as a very positive step.