Tag Archives: PMRS

The Perfect Storm

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When will elected officials tackle the building pension crisis? According to researchers at the American Enterprise Institute "it is only when the gloom of crisis finally descends that public officials will muster the will to address the mismatch between [pension] promises and resources".

Obviously in Pennsylvania that gloom arrives at different times-with two statewide systems (one for teachers, one for state workers) and more than 3,000 local government plans-depending on the funding status and weight of unfunded liabilities. It could be easily argued that the gloom is on Pittsburgh. Just yesterday the Council approved its Act 47 amendment that calls for an additional $10-$14 million per year to be put toward pensions. Philadelphia is at that point as well with unfunded liabilities of close to $4 billion and a funded ratio of 55% in 2008, only besting Pittsburgh (29%) and Atlanta (53% in 2007) according to a Pew Charitable Trust study of the issue. The majority of other local plans entered the economic downturn with healthy funded ratios. Now the Public Employee Retirement Commission is trying to build consensus for municipal reform, including an option to shuttle the most troubled municipal plans to state control and oversight.

The day of reckoning for the statewide systems in Pennsylvania is closer to 2012 when rate spikes are expected to take hold. A presentation made to the Senate Finance Committee last month showed that the employer (school district) pension contribution is supposed to grow from 4.75% in 2011 to 16.40% in 2012. The companion state retiree system shows employer contribution rising from 8.79% in 2011 to 28.30% in 2012.

That same AEI study notes an expert as saying "once granted, a pension is a contractual obligation of the employer" and taxpayers will be on the hook for any shortfall. Not a reassuring situation for a state contemplating tax hikes or a region where its largest County just added two new taxes and its largest City is looking for a variety of tax and fee options.

Lumping in Pensions

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Obviously content with the progress in merging the City of Pittsburgh and Allegheny County, the Chief Executive (along with other county officials) convened a panel on local pensions yesterday that examined what should be done with the 3,100-plus plans that dot the Commonwealth. "Should there be a statewide municipal pension fund?" was one question the Executive asked.

The answer is "it depends". If the plan is to absolve local governments completely of there liabilities, it is unlikely to happen. Philadelphia alone accounts for nearly $4 billion in unfunded liabilities, the lion’s share of the total local unfunded liability. If there is a voluntary movement to the existing PA Municipal Retirement System where there would be management of investments but local governments still make contributions, it would be possible but it would be a gradual process.

But it is not true that consolidation would allow municipalities to withstand market downturns or pressure from parties interested in increasing benefits as the Executive seemed to imply. Consider that the state’s two statewide pension plans-SERS for state workers and PSERS for teachers-have been hammered by the downturn. And since these huge plans cover so many workers the impact of rate spikes are much more widespread. We already know that both systems are set for big jumps in the employer contribution rate due to promises made by the Legislature in the early part of the decade. School districts could see a tripling of their rates. One school official noted "even though we know we are coming up to a cliff, nobody’s been willing to address that cliff ahead of time".

Strength in numbers? Maybe, maybe not.