Pension Ratio Slips: What Does it Mean?
Under Act 44 of 2009, a law that dealt with municipal pensions in Pennsylvania, the two largest cities in the state were given special provisions regarding their pensions. Philadelphia got an extra point on its sales tax (taking it to 8%) and Pittsburgh was given the option of leasing its parking garages as a way to make a big cash infusion into the pension fund. The City could boost its parking tax as well if it did the lease. If the City’s funded ratio (assets/liabilities) was below 50% as of its 2011 valuation the fund would have been taken over by the state.
None of that happened: an alternative plan based on a thirty year funding stream came together and the Public Employee Retirement Commission valued the fund at 62% in September of 2011, making it "moderately distressed" under Act 44’s classifications. Just last week the City’s pension board was given a presentation by its fund manager that showed the fund now has a ratio of 55.8%: lower than PERC’s valuation but still "moderately distressed".
So what happens if the City should slip below 50%, into the land of "severely distressed" and the area from which the state tried to keep them out? Apparently nothing since the takeover trigger under Act 44 was a one time measurement: beat the benchmark and management of the fund stayed with the City. Conversely, if the pension fund’s health gets better and eventually reaches a 70% level, it would be considered "minimally distressed" under the statute.