Capitol recap: lawmakers propose to stabilize the worst-funded city pension funds

 Think of it as the state’s Act 47 recovery law for distressed communities – but for municipal pensions, specifically.

House Bill 974 would force officials presiding over severely distressed local retirement systems to come up with a plan to get back on track – or lose control of the pension to the state. 

The rules would apply only to local retirement funds with more than 100 members, according to the legislation introduced this week by State Rep. Scott Petri, R-Bucks.”Severely distressed” refers to pensions projected to have less than half the money needed to pay pensions promised retirees and vested workers.

Just 22 of the Commonwealth’s 2,200 or so defined benefit plans that category. When the mild and moderate distress levels are counted, nearly half —about 1,000—are in trouble to some extent.

How it would work

Petri says cities would have 10 years, max, to get it together. By that, he means get the retirement system up to at least 70 percent funded, which is categorized as moderately distressed.Municipalities would have to come up with a plan for reaching that point, a requirement triggered by two consecutive severe distress ratings from biannual state Auditor General’s office probes.

The plan would be due six months from that second rating, submitted to the state Public Employees Retirement Commission for approval. PERC already collects and analyzes municipal pension data, which informs the Auditor General’s investigations.Petri’s proposed bill puts PERC in charge of monitoring compliance with pension recovery plans. PERC also would have the option to petition the court for a takeover by the state Auditor General – and, ultimately, a trusteeship – if local officials aren’t following the plan.

In practical terms

So how would all that expedite stabilizing pension funds, or enable options for doing so that aren’t already on the table?

A takeover threat might be motivating, so long as state officials follow through. (The Auditor General rarely exercises its lone existing enforcement mechanism—withholding state aid for local pensions—as it is).

City officials are loathe to cut pensions benefits, which is a legal impossibility even for those that might want to. That’s happened in a few municipal bankruptcies, though rare nationally and unprecedented in Pennsylvania.The bill lists selling assets and borrowing as possible remedies to include in pension recovery plans, but some cities already are doing that to deal with pension expenses, along with cutting services. They might even employ all three options, over a matter of years, underscoring just how short-term these solutions are.

“It simply forces a path/plan for folks who have no resources,” says Pennsylvania Municipal League Executive Director Rick Schuettler.

Schuettler stressed the need for structural reforms such as those pitched by state Rep. Seth Grove, R-York, in a bill that would mandate 401(k)-style retirement plans for future police officers and keep pledged benefits for retired officers and the existing workforce.Petri’s proposal is the first in  recent, related efforts to deal exclusively with existing pension liabilities, and in a manner reflecting the urgency of  the cumulative $7.7 billion long-term liability of local pensions in Pennsylvania.

The bill is with the House Urban Affairs Committee, meeting 10 a.m. Tuesday in the Capitol Complex’s North Office building.