By: Senator Gene Yaw (R-23)
In a recent Williamsport Sun-Gazette Op-Ed (“Municipal Pensions: The rest of the (untold) story…”), David M. Sanko, Executive Director of the Pennsylvania State Association of Township Supervisors, accurately outlined Pennsylvania’s pension crisis. He noted that while municipal pension plans in larger cities like Philadelphia, Pittsburgh and Scranton are distressed, many of the state’s smaller municipal pension plans are doing just fine. A 2013 study of Pennsylvania municipal pensions, sponsored by the Center for Rural Pennsylvania, dug even deeper and found that many of Pennsylvania’s rural communities are doing it right when it comes to their municipal pension obligations.
The Center for Rural Pennsylvania study analyzed data from the Pennsylvania Municipal Retirement System, the Pennsylvania Public Employee Retirement Commission (PERC), and the Auditor General’s office and covered a 10-year period of 2001-2011. The finding was that many urban municipalities have had pension plans with unfunded liabilities since 2001, that these liabilities increased over time, and that even the upswing in the market from 2010 to 2011 did not help to decrease these liabilities. On the other hand, rural municipalities with unfunded liabilities saw improvements in 2009 and 2011 along with market conditions. These findings suggest that urban municipal pension plans may have deeper issues ~ issues that relate to their structure and not solely market fluctuations. These structural issues could be anything from the amount employees pay into the plan, the amount that is paid out in benefits, or the management of the plan.
In early 2014, Auditor General Eugene DePasquale issued a report detailing the state’s municipal pension problems. Most of the recommendations included in that report involved restructuring and consolidating all Pennsylvania municipal pensions. For the past 20 years PERC has also recommended that municipal pension plans be consolidated to decrease administrative costs. However, the research sponsored by the Center for Rural Pennsylvania suggested that rural pension plans should not be consolidated with urban pension plans. A one-size-fits-all consolidation would combine pension plans that are fully funded with others that have unfunded liabilities in excess of $6 billion. The Center’s study was not able to examine administrative costs and does not dispute PERC’s findings concerning such costs. However, it remains a significant point that PERC did not examine pension plans by a rural/urban designation, and raises questions about the real benefit of one consolidated municipal pension plan.
Before any policy changes regarding municipal pension plan consolidations are made, systematic problems should first be identified and appropriately remedied. This can help to ensure that these changes actually address the problem and are fair and equitable for all municipalities. We should not punish the success of rural plans based on the failure of urban plans.