PENSION CRISIS: PMRS takes more conservative approach

September 28. 2012 3:00AM

Jason Scott

Pennsylvania has more than 3,200 local government pension plans — roughly a quarter of all municipal plans in the nation.

Of those, about 940 are administered by the Pennsylvania Municipal Retirement System, an independent state agency that serves as an alternative for municipalities that choose not to self-administer plans.

Unlike the State Employees' Retirement System and the Public School Employees' Retirement System, PMRS doesn't have an unfunded liability, based on its most recent actuarial report.

However, its surplus has been dwindling, and the number of underfunded plans has been on the rise.

"Clearly, public pension plans are under siege, if you will, from a number of different fronts," said James Allen, the agency's secretary. "Some are self-inflicted, others are not."

The most obvious one continues to be the financial crisis of 2007 and 2008 that deflated assets. In other cases, municipalities have been more generous with benefits or failed in their fiduciary responsibilities, Allen said.

PMRS takes a different approach. To feel more comfortable with the probability investments will reach their goals, the agency assumes a 6 percent rate of return.

Its state counterparts are assuming 7.5 percent.

For every three or four plans that look to PMRS for help, one turns over the keys to the plan, Allen said.

"Plans are finding it extremely expensive and difficult, and there are more and more requirements," he said.

The majority of municipal plans in Pennsylvania also have 10 or fewer members.

PMRS does not take a position on reform, unless a specific proposal impacts operations, Allen said. However, he understands the big focus is on benefit design and not how well a plan is funded.

The major question is this: "What is the appropriate benefit out there?" he said. "You need to have a goal. What is a legitimate retirement benefit, and then build (a plan) with the defined-benefit and defined-contribution tools to get there."

A growing number of municipal pensions have turned to cash balance plans, Allen added. Nearly a quarter of the plans PMRS administers have such a plan.

"Essentially, it works like a defined-contribution plan," he said. "The employer puts X amount of dollars in and walks away. That pot is there for employees."

PMRS credits at 6 percent interest.

"If we don't make 6 percent, then the municipality has to make up the difference," Allen said. "It's a solution the General Assembly clearly should be looking at. It's essentially a defined-contribution plan that has a floor."


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