The head of the Pennsylvania Municipal Retirement System went before Pittsburgh City Council Thursday for several hours in an effort to make the members understand just what the system does and how it can work with the city. Under state law, if the city does not bring its pension funds up from the current 27% funded level to 50% funded by the end of the year, it will be forced to turn over its assets to the Pennsylvania Municipal Retirement System for management. PMRS Secretary James Allen stresses that it was the state legislature, not he, who came up with the idea. Allen calls it an “arranged marriage” rather than a “takeover” as it has been portrayed. Pittsburgh Mayor Luke Ravenstahl has proposed leasing the city’s parking assets for the next 50-years to infuse enough money into the pension system to bring it up to the needed 50% level. Council has shown little to no interest in the plan and some members have suggested that being taken over by a state-wide system would not be that bad. The mayor warns that if the PMRS takes over the pensions it will lead to an unaffordable increase in payments.
The system currently manages more than 900 municipal pension funds. 418 of them are fully funded and the rest are on a 30-year path to that number. Only five are under 30% funded. Pittsburgh would be put on a path to being fully funded. Currently the city must put at least $46 million dollars into its pension system annually, the Ravenstahl administration says that number would jump to 72 million dollars a year if it were to be taken over by the PMRS. Sec. Allen says they are crunching the numbers and will have an estimated payment rate to the city council in three weeks. The data needed to make the calculation was sent to the system this week and last after the council issued a subpoena to the mayor’s office. If the city is compelled to enter into the system, state law will allow it to send just 75% of the required amount to the PMRS for the first 6 years.
Allen says no mater if the PMRS takes control of the pension assets or if the city retains control, the IRS is starting to crack down on pension funds that are not operated in the best interest of the pension holders. He says that includes making it fully funded.
The PMRS currently is offering a guaranteed 6% rate of return for municipalities that have voluntarily entered into the system. Pittsburgh would be given the same rate of return. Allen says the 6% rate will remain in effect for 2011 and will be recalculated every year there after. The system tries to smooth the ups and downs in the market by building as much as a 10% reserve in good years and allowing the fund to dip into the red in the lean years. Allen says right now the PMRS actually has 84 cents for every dollar it says it has but before the market crash was funded at $1.09 for every dollar it had credited to its investors.