Pittsburgh welcomes option of possible pension handover to state agency

Pittsburgh is “pleased [it] has the option” to join PMRS, said Tim McNulty, spokesman for Mayor Bill Peduto.   

The city of Pittsburgh may consider moving its pension funds from local management to the state-run Pennsylvania Municipal Retirement System (PMRS) in the next five to ten years. 

PMRS administers nearly 1,000 municipal pension plans from around the state. Participating municipalities can continue to offer the same benefits they’ve promised workers, but PMRS provides a relatively conservative management approach and uses economies of scale to make smarter investments and drive down administrative costs. 

A new report from Governor Tom Wolf’s Task Force on Municipal Pensions recommends all distressed municipalities hand over their pension funds to PMRS. The task force suggests that Philadelphia and Pittsburgh, due to their size and liability level (about $6 billion of the total $7.7 billion statewide liabilities for all municipalities), have the option to maintain local control. The report says if the cities decide to join PMRS will have to add staff to deal with the cities’ pensions.  

According to Auditor General Eugene DePasquale, Philadelphia intends to stay local. Pittsburgh, on the other hand, is “pleased [it] has the option” to join PMRS, said Tim McNulty, spokesman for Mayor Bill Peduto.    

In 2010, when Pittsburgh’s pension funds were only 27 percent funded, the state mandated the city reach at least 50 percent funding or hand over management to PMRS. Back then, the city looked for solutions to avoid a PMRS takeover. Then-Mayor Luke Ravenstahl wanted to sell off Pittsburgh’s parking assets in order to infuse capital into the pension funds. Ultimately, city council passed ordinances that kept the parking assets in the city’s control but dedicated revenues from parking to the pension funds. The state approved the funding scheme and Pittsburgh avoided giving control to PMRS.

“I think that those of us in city government at the time believed that we could do a better job managing that fund and that we would do a better job perhaps than PMRS,” said Patrick Dowd, a council member at the time who helped develop the eventual solution. “I think there was a desire to keep control of those assets here at the local level and to make decisions at the local level rather than allows those decisions to be made for the city at the state level.”

So what’s changed?

McNulty said in an email that in 2010, the city’s Minimum Municipal Obligation (MMO) — the amount the municipality has to put into its pension each year — was $40 million. Due to the assumptions used by PMRS in calculating the MMO – for example, the assumed rate of return on investments – joining the state agency would have tripled the city’s MMO to $120 million per year, said McNulty. Since less money is assumed to come from investment returns, the city has to make up what’s missing. “We just didn’t have an extra $80 million to put into the pension,” he said in an email. 

He pointed out that the same problem still stands. Pittsburgh’s assumed rate of return is currently 7.5 percent, while PMRS’ is 5.5 percent. 

“Once we get to the debt cliff in 2019 (when we’ll have $40 million less in debt payments) it becomes more of a reasonable option,” McNulty said.