Thursday, November 4, 2010

PMRS: Pension Program Needs $3.6B Over 30 Years

The top actuary for the Pennsylvania Municipal Retirement System says it will take payments totaling $3.65 billion over the next 30 years to bring the Pittsburgh Pension system up to 100% funded if the city voluntarily joins the system. That number comes down to $3.25 Billion if the city is forced to enter the system under act 47. The difference comes in the assumed rate of return.

If the city does not bring its pension fund up to 50% funded by the end of the year it will be forced to join the PMRS. Right now the fund is somewhere between 25% and 28% funded depending on who is making the estimate. The Mayor’s office leans to the higher number and the actuaries at the PMRS lean to the lower number. PMRS actuary Ken Kent says it will take a one ime infusion of $224 million to get the 50% level.
The PMRS laid out several scenarios for the council and listed expected yearly payments, or minimum municipal obligations (MMO), for each one. If the city were to not be taken over it would have to make a $58 million MMO payment in 2011. That number would increase to $98 million by 2017 and peak at $107 million in 2030. That is based on the city’s current assumption that it will get an 8% return on the money in the fund. If the city were to enter into the system on its own, a 6% rate of return would be assumed and that would result in a $46 million dollar MMO payment in 2011, $127 million in 2017 and peak at $160 million in 2032. If the state were to be forced to enter into the PMRS it would be allowed to assume a rate of return of 7.5%. That would start the payments at $47 in 2011, move to $132 million in 2017 and top out at $149 million in 2030. This year the city plans to make a $45 million payment into the retirement plan and may add an additional $11 million from fund balances.

PMRS Secretary James Allen stress that all the numbers are based on predictions of return rates, longevity among plan members and pension benefit rates. If any of those numbers change the payment schedule will have to be modified. The PMRS sets its return rate every year and tries to smooth out market highs and lows by building surpluses in good years and deficits in bad years. Allen says, “the actual cost of a pension plan is not known until the last surviving beneficiary is paid their last benefit.”

Councilman Ricky Burgess asked the representatives of the PMRS to run different set of numbers based on the assumption that the city brought the pension to the 50% level and added a 6 million dollar revenue stream to the mix. That scenario keeps payments below $66 million a year and gets the program to 100% funded by 2029. Burgess feels that would be the scenario if the city were to lease its parking assets for the next 50 years and use the proceeds to fund the pension program.

Several other council members also asked for special scenarios including one by Patrick Dowd that asked about a onetime infusion of $220 million dollars. That is the amount council was hoping to gain from the sale of garages, surface lost and meters to the Parking Authority. A deal the Authority Board Rejected.

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