Pennsylvania’s Public Sector Pension Crisis: What Local Elected Officials Need to Know to Make the Best Decisions Regarding Their Community’s Plan

The current public sector pension crisis will place huge financial demands on Pennsylvanians for decades; learn about your roles and responsibilities at the February 2nd program, "Pensions 101" for Elected Officials.

Though municipal pension problems have receded from the headlines in recent months, Pennsylvania’s municipal pension funding crisis is far from over.  Across the Commonwealth, there are nearly $7 billion in unfunded pension liabilities, and over 500 municipalities, representing nearly a third of Pennsylvania’s population, have pension funds that are under substantial stress. With the market volatility of the last several years, pension fund assets have seen dramatic losses in value, requiring even greater annual payments from municipalities, many of whom already face annual required pension contributions equal to 5-10% of their revenues.

In the face of these challenges our state government, rather than acting decisively, has avoided the tough decisions and pushed the problem farther down the road. Although the legislature has passed some modest reforms, it is still far too easy for local governments to underfund their pensions, and far to difficult to implement the kind of reforms that can help control the growing mountain of pension debt. Among the challenges that Pennsylvania law place in the way of municipalities that want to control escalating pension costs are:

• Binding arbitration that is heavily skewed against municipal governments. Under current law, when an arbitrator rules on a contract dispute and sets pension benefit levels, there is no requirement to consider the ability of the municipality to pay for those benefits.
• State regulations which mandate benefit levels for public safety employees in many classes of municipality. Although there are many different ways to provide retirement benefits, local governments often have their hands tied and are required to offer difficult-to-plan defined benefit pensions.

While restrictive and sometimes adverse state laws hamstring municipal government in pension issues, some municipal pension problems arise from poor management practices.  For example, in order to keep minimum municipal obligations low, some municipalities assume over-optimistic discount rates that that far exceed actual market returns, resulting in annual contributions that are insufficient to meet obligations. Over time this common practice seriously deteriorates pension fund health.

It is crucial for municipal pension plan health that state laws be amended to allow municipalities to implement the range of best practices available to the non-governmental sector.  But it is also essential that local elected officials learn about and implement prudent management practices so they can at least make the best of a bad situation. Good, sound pension plan management practices are indispensible for the provision of an adequate retirement for employees and to maintain stable and sustainable budgets in their communities.

To learn about these topics, and others related to the management of your community’s pension plan, elected officials, especially those who are new to local office, are encouraged to attend Local Government Academy’s upcoming program, “Pensions 101” for Elected Officials, on Thursday, February 2, 2012 between 6 PM and 9 PM at the Avalon Borough Building. Reserve your spot by registering on-line today: http://tinyurl.com/Pensions101.

 

Submitted by:
Will Bernstein, Policy Analyst, Allegheny Conference on Community Development
Brian Jensen, Ph.D., Executive Director, Pennsylvania Economy League of Southwestern PA, LLC and Senior Vice President, Civic Policy

Comments

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the legislature has passed some modest reforms, it is still far too easy for local governments to underfund their pensions for its final point!