ICA Learns About Pension Woes and Solutions

Aug 7, 2012

One of two boards that oversee Pittsburgh's budget gathered input Tuesday on the city's pension obligations, and heard the common refrain that the real answer lies in pension reform at the state level.

City budget director Scott Kunka opened the discussion before the Intergovernmental Cooperation Authority (ICA) by noting that even if the city added all $10 million dollars expected from gaming revenues to its annual $60 million pension payment, it would only make a small blip in in the amount of money in the account 30 years from now.

"Would it be good to throw another $10 million or $20 million or $30 million into the pension every year? Absolutely," said Kunka, "but where do you get it from? Do you do from less police officer(s), less firefighter(s), less paving?"

Kunka said it is much more important to get the state to change its laws. He is asking for a four-pronged approach that would include allowing cities to offer defined benefit plans like a 401 (k) in the private sector. Kunka would also like to see a more equitable distribution of state dollars intended for municipal pension funds and consolidation of funds where appropriate.

The city has been making that argument for years with little success. Kunka thinks it will take Philadelphia getting behind the effort before there is any movement. ICA Board Chair Dana Yealy does not dispute the need for reforms.

"It's been discussed. It is something we would support the city and we would work with the city," said Yealy. "We think that is one of the solutions to be combined with other. Whether that can be done is another issue."

Members of the ICA board and other speakers hinted throughout the meeting that the city's presumption that it will receive an 8% return on the millions of dollars in the fund might be too high. In the last 10 years the fund has seen a 5.2% return on investment and a 1.9% return in the last 5 years. Kunka said the city needs to look at the possibility of return over the next 30 years rather than just the near future. Others feared the city would get too far behind in the near future, putting the solvency of the fund in doubt.

In 2008 the fund managers rolled back its assumptions from 8.75% to the current 8% rate. If the number were to be further reduced it would force the city to increase its yearly payment into the fund.

Yealy believes there is a solution to the problem, noting, "the city has some very smart people working for it," and that the city is not alone in its woes. "There are municipalities and state across the country that in recent years have had to address this issue. It's a structural problem that has to be addressed."

At the same time Yealy calls the current health of the city's pension fund "tenuous." "There is more money going out than coming in," said Yealy.