Pennsylvania's auditor general said Thursday that something has to change when it comes to municipal pensions, calling it a nearly $7 billion problem.
Eugene DePasquale stopped by the 69 News studios to talk about the issue.
It's something that could end up affecting people all across the board, he said. DePasquale is pushing for action at the state level soon.
"There is nearly a $7 billion liability from municipal pension plans all over the state," he said.
He said 573 out of 1,218 municipalities that administer pension plans in the state are distressed and underfunded.
"Pennsylvania has more municipal pension plans than the rest of the country combined," he said.
He said municipal pension plans have to be part of the pension reform discussion in the state.
"If this is not addressed at the state level sooner rather than later, we believe within the next two years, cities are just not going to be able to make these payments or you're going to have dramatic property tax increases and layoffs of police and fire," DePasquale explained. "Cities are going to have to look to where their money is and public safety is going to be the place where there's the biggest pot of money."
DePasquale said without changes, the municipal pension problem could force some townships, boroughs and cities into bankruptcy.
In Easton, for example, Mayor Sal Panto has said pension costs have skyrocketed 270 percent over the last five years.
"I would like to see the reform be the way cities calculate the minimum municipal obligation that they have to put in," said John McKenna, president of the Easton Professional Firefighters.
DePasquale said if the state Legislature does not address the issue soon, the problem will only get worse over the next year. He is recommending several changes.
"I think we need to do a better job of consolidating administrative functions across the state and I think some common sense reforms," he said. "Just for example, I think eliminating spiking for certain employees at the end of their year, in a sense not allowing them to have an inflated income for their pension by just putting in a lot of overtime in the last couple years.
"If someone has a general salary of sixty or seventy thousand dollars but in their last two years they put in a huge amount of overtime and they get to what becomes a pension number of one hundred thousand, which is actually unfortunately very common, that dramatically impacts the city's debt load that they have to finance in their pension obligation."
The following recommendations were listed in a news release from the auditor general's office:
- To address underfunding of municipal pension plans, the report includes the following recommendations:
- Exclude “spiking” overtime and lump-sum payments for accrued leave when determining pension benefits
- Update age and service requirements for normal retirement eligibility to account for increased life expectancy
- Establish consistent member contribution provisions
- Narrow the range of acceptable investment rate of return assumption options to reflect current economic conditions
- Establish a new distress recovery program that would amend the current formula of state aid distribution to provide for additional state aid based on distress level. Additional aid should only be provided if municipalities meet certain requirements such as funding plans in accordance with Act 205 standards, agreeing not to provide any benefit increases to current employees, and establishing a revised benefit structure for new hires
- Set limits on the amount of pension costs that may be reimbursed by the commonwealth, thus ensuring that municipalities contribute a portion of a plan’s annual pension costs exclusive of state aid allocations
- Mandate that each municipality publish its annual pension costs, by plan, for public review
- Reduce administrative and management fee expenses
To address systemic issues associated with the administration of municipal pension plans, the report includes the following recommendations:
- Consolidation of local government pension plans into a statewide system plan segregated by different classes of employees, e.g., police officers, firefighters, and non-uniformed employees, for both current and/or future municipal employees. Such consolidation should consider the size of local government plans currently in existence and prohibit the merger of plans with unfunded liabilities with plans that are currently maintaining adequate funding levels
- Consolidation of the administration of the local government pension plans by one entity while maintaining the existing system of individual pension plans. This overall administrator could be entities such as the Pennsylvania Municipal Retirement System (PMRS), the State Employees’ Retirement System (SERS), or another large multiple-employer plan administrator
- Develop portability options for existing municipal employees to allow changing municipal jobs without fear of forfeiting accrued pension benefits
- Mandate a state agency, such as DCED’s Bureau of Local Government Services, to have responsibility for providing guidance to municipalities for compliance with applicable state statutory provisions. This agency could also establish best practices, develop manuals, and offer training to municipalities related to pension plan administration