Underfunded pensions a growing problem across Pa.

Signe Wilkinson / Phila. Daily News
Signe Wilkinson / Phila. Daily News
Posted: July 06, 2013

Some towns have raised taxes and others have cut services as they endure their own versions of the pension crisis playing out in Harrisburg.

In fact, Pennsylvania - home of 25 percent of all the public pension plans in the nation - has so many ailing plans that pension distress might qualify as an official state illness.

Some Philadelphia suburbs have had to double - even quadruple - their minimum pension payments for retired police officers and municipal workers. And 30 of the area's municipal pension plans are funded at 69 percent or less, according to Pennsylvania's Public Employee Retirement Commission.

Pension costs have contributed to tax hikes in Haverford Township and layoffs in Towamencin, and delayed renovations on a police station in New Britain.

As obligations mount, experts predict that more communities will have to raise taxes or cut services.

"It's up to the locality to find the money," said James McAneny, executive director of the commission. "But ultimately, the obligation lands on the citizens, the taxpayers, and the residents of the community."

The recession deflated local pension plans in the same way it drained retirement funds for state workers and teachers. Municipalities can depend less on investment gains to shoulder pension costs, forcing them to spend more tax dollars on retirement benefits.

Overall, local government pensions (not including Philadelphia's) are underfunded by about $2 billion in Pennsylvania, according to Temple University's Center for Regional Politics. That's a fraction of the $46 billion that's lacking in the pension funds for state workers, public-school teachers, and the City of Philadelphia.

The majority of Pennsylvania's public pension plans are healthy - funded above 89 percent. But hundreds have lost value. In the Philadelphia suburbs, 29 towns have pensions under a "moderate" level of distress because they are less than 70 percent funded, according to the retirement commission.

Thornbury Township, Chester County, is listed as having a "severe" distress level. Its pension fund for employees is 23 percent funded.

An underfunded pension fund is not illegal, said McAneny. Towns are following the law as long as they make the minimum payments to pension plans.

Addressing the problem won't be easy. Unlike the statewide plans for teachers and state workers, Pennsylvania has more than 3,000 public pension funds, a quarter of all the public plans in the country. Each varies in size and is governed by a constellation of statutes depending on the type of government involved.

"They're like snowflakes," McAneny said. "Welcome to chaos."

Many towns have weathered rising pension costs with little impact on taxes or services. Lower Makefield, a township of 30,000 people in Bucks County, absorbed a 50 percent jump - about $300,000 - in annual pension payments in five years by reducing other expenses, Township Manager Terry Fedorchack said.

But pension costs have contributed to tax hikes and layoffs in other suburbs.

Towamencin, a township of about 18,000 in Montgomery County, saw annual pension obligations quadruple in 10 years to $800,000, about 6 percent of its annual budget, Board of Supervisors Chairman Dan Littley said. In 2010, the costs contributed to a tax hike of about $136 on the average home, as well as the layoff of five workers. The township also paved fewer roads.

In New Britain Township, a community of 11,000 in Bucks County, increasing pension costs contributed to layoffs of two administrative employees and the indefinite delay of police renovations. The growing costs have consumed about 17 percent of its $1.7 million budget this year, Township Manager Eileen Bradley said.

In Haverford, a township of about 50,000 in Delaware County, pension costs doubled to $2.7 million in five years, amounting to about 8 percent of the township's budget. Pension costs were a large contributing factor to tax hikes, including a $55 increase for the average homeowner in 2011, according to Jeff Heilmann, a board commissioner.

Haverford has been able to temper rising pension costs by moving newly hired municipal workers into 401(k) plans, shifting the market risk onto employees instead of taxpayers, Heilmann said.

Eugene DePasquale, Pennsylvania's auditor general, said the stock market downturn had an "enormous impact" on municipal pension funds, resulting in some becoming underfunded.

"The money isn't owed tomorrow," he added. "But there's no question there is a funding gap. And the question is, how do you fix that gap?"

Towamencin has always paid its pension obligations. But in 2011, its pension plans were only 64 percent funded, mostly because of investment losses, said Littley, the board chairman.

The fund continues to improve with market gains, Littley added.

Lawmakers in Harrisburg are considering several statewide changes. One bill would require officials to consider whether a town could afford all of the provisions in police and firefighter union contracts. Another idea is to encourage municipalities to consolidate their plans.

Either way, the stock market won't solve municipal pension woes in the long run, said Joseph McLaughlin, director of Temple's Center for Regional Politics. The losses from the recession were too great.

"Sooner or later, these obligations from the past have to be paid for," McLaughlin said. "There will be tax increases eventually, tied to the operating budget. And they will be caused partly by the need to fund these pensions. And there will be service cuts."

Contact Ben Finley

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Bucks County news at Inquirer.com/bucksinq.

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