Pennsylvania’s local pension funds mostly well-funded, in good shape
By Anthony Hennen | The Center Square
HARRISBURG, PA – Even as a pandemic drove down stock returns and caused fluctuations in the economy, Pennsylvania’s city pensions stayed in relatively good shape.
A policy brief from the Allegheny Institute noted the breakdown from the auditor general of 1,403 municipalities across the state: “Over 75 percent of municipalities had a score of 0, or no distress. Four municipalities had a score of 3, or severe distress, ranging from 47 percent- to 13 percent-funded.”
About 19% of municipalities (269) were in minimal distress, meaning their funded ratios were in the 70%-89% range.
Smaller pension plans aren’t the worst performers. The largest cities in the commonwealth drag down the average.
“If the individual municipal plans were consolidated into a single plan similar to those for state employees or public-school employees, the plan would have $21.2 billion in assets, $28.4 billion in liabilities and a funded ratio of 75% – placing it in minimal distress and a score of 1,” Allegheny Institute Research Director Eric Montarti wrote. “Remove Philadelphia and Pittsburgh and the ratio rises to 92%.”
Montarti also criticized some of the management decisions of larger pensions.
“When Pittsburgh’s funded ratio (based on the 2019 valuation) rose above 70%, Pittsburgh officials decided to restore benefits for non-uniformed employees that were reduced when the city was under state financial supervision,” he wrote. “It would have been wiser to wait and see if the funded ratio was going to climb higher in the minimal distress range.”
Not all performance, good or bad, can be blamed on pension officials, however. Pension investments and performance depend on the stock market, which has been down almost 20% in 2022.
As noted in The Philadelphia Inquirer, the Pennsylvania State Employees’ Retirement System has lost $3 billion in value during the second quarter; the fund stands at $34.5 billion. If the targeted 7% investment return isn’t met, it could require an increase in taxpayer contributions to the retirement system to avoid a bigger deficit.
In the future, policy changes could avoid fiscal difficulties and a heavier burden on taxpayers.
“Looking for ways to economize, provide local services efficiently, moving new hires to defined-contribution plans and not making overly generous pension promises that have to be paid at some point are certainly within the purview of those governing bodies,” Montarti wrote.
Municipalities are regularly audited by the state to track state funds.
“Our audits make sure state pension aid is used as required by law, which helps to reduce financial burdens on local taxpayers,” Auditor General Timothy DeFoor said in a press release.
