Pittsburgh City Controller Michael Lamb said Thursday’s board vote to lower the pension fund’s projected rate of return was good financially for the city.
The fund’s assumed rate of return was lowered from 8 percent to 7.5 percent after a 5-2 vote led by Mayor Luke Ravenstahl's allies. Supporters of Mayor-elect Bill Peduto then accused Ravenstahl of political maneuvering.
Ravenstahl was opposed to lowering the rate during most of his tenure.
Lamb said he understands that people “want to make politics out of the transition,” but the main focus should be that the city’s pension fund is on more sound footing.
“You can’t look at this issue and think yesterday was a bad decision," he said. "Everybody believes we need to lower this rate of return."
The expected rate of return is an estimate on how much the pension fund’s assets (bonds, stocks) will grow in a given year. Until 2008, the rate was set at 8.75 percent, and then City Council passed an ordinance requiring the Controller to sit on the Pension Board. In one of his first meetings, Lamb voted to lower the rate to 8 percent, where it remained until Thursday.
He said during the recession, the fund was making about a 6 percent return. The past two years have seen returns in the teens, with the fund on pace to gain 15 percent this year.
Lamb said, even though the fund did well last year, they can’t always expect it to.
“You have to think about these as long-term investments,” Lamb said. “When you think about a portfolio like this over a ten or 20 year time frame, you’re looking at a fund that probably returns somewhere between six and seven percent.”
Now that the rate or return has been lowered, the city will have to contribute more money to the fund to ensure that it continues to be properly funded.
Lamb said that it will not force a budget crisis because, over the past two year years, the city has been contributing more than the minimum needed to stay at or above the 50 percent funded mark. He said the $5 million extra the city now has to contribute annually is already in the 2014 budget, and most likely would have been in the 2015.
Lamb said there is roughly $560 million currently in the fund with $350 million coming from investments, and the other $210 million coming from parking payments that were part of City Council’s 2010 bailout of the pension plan.