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Pension fix in budget 'probable'

Jeremy Boren
| Wednesday, June 24, 2009

Legislation intended to rescue municipal pension funds reeling from the global economic downturn could be part of the state budget proposal, a top state pension official said Tuesday.

"It is very, very probable that when the budget passes, you're going to see this as a part of that solution," Jim Allen, secretary of the Pennsylvania Municipal Retirement System, told about 200 municipal officials at a pension summit in PNC Park's Lexus Club arranged by Allegheny County Executive Dan Onorato and other county officials.

A state budget likely won't be approved by the June 30 deadline, as lawmakers and Gov. Ed Rendell debate ways to help close a $3.2 billion deficit. Rendell has proposed a 16 percent income tax increase.

"I know there is a great deal of concern among municipalities that their pensions are in some trouble," said Rendell's spokesman Chuck Ardo. "We would certainly be open to any legislation that might be percolating."

The proposal, being pushed by Senate Finance Committee Chairman Patrick Browne, seeks to reduce and delay minimum payments municipalities must make to pension funds.

Many face abnormally large pension payments because stock market investments made by pension funds haven't met expected returns. Many municipalities must make up the difference with money from general funds.

The problem is particularly acute for pension funds with less than 50 percent of money needed to cover liabilities, and the pension recovery program seeks to put them in state hands, Allen said.

About 70 to 75 municipalities have pension funds that would likely would fall into a severely distressed category, said Allen. Only two are in Allegheny County: Pittsburgh (28 percent funded in 2009) and Braddock Hills (35 percent in 2007).

"The final solution is that those plans that are severely distressed, they're locked down. They're shut down. Boom," Allen said.

The state retirement system runs about 900 pension plans with roughly 14,000 active and retired participants. It would take over administration of the pension plans and stop municipal officials from offering greater benefits to new employees, Allen said.

The reason is simple.

"You can always grant additional benefits, but you can't take them back," said Rich Miller, a labor and employment law attorney who spoke at the summit.

Benefits for current employees and retirees can't be changed under state law. Pension officials would collect yearly minimum contributions from the distressed municipalities.

"I didn't realize it was so bad," said Charles Arthrell, a Braddock Hills councilman. "We're such a small borough. We could really use the help from the state."

Scott Kunka, Pittsburgh's finance director, said city officials oppose the rescue plan in its current form.

"(The state's fund) doesn't really have any better returns than the city has," Kunka said. "And we don't think it has the administrative capacity to handle cities like Pittsburgh and Philadelphia."

The city's pension fund has about $251.70 million to cover $899 million in liabilities. Officials are trying to make budget cuts and raise revenue to contribute $10 million to $14 million more each year toward the fund, as required by the city's five-year financial recovery plan.

City police and firefighters could retire at age 50 with 45 percent of salary after 20 years. Non-uniformed employees could retire at age 65 with 45 percent of salary after 30 years of service. Larger percentages of salary are gained with additional years.

One of Pittsburgh's largest labor unions, International Association of Firefighters Local No. 1, opposes the pension rescue package because it removes local control, said Joe King, union president.

"Things like widow and survivor benefits shouldn't be administered by Harrisburg," King said.

In 2005, King gave up holiday and vacation time during negotiations with city officials to keep a 25 percent pension award in the firefighter contract for orphaned children with physical or mental disabilities. Such special elements could be lost in a state-administered system, he said.

"You lose that personal contact with the individual retirees," he said.

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