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It's time to fix city pensions
Long-term solutions require more funding and reduced benefits
Thursday, October 13, 2011

It is welcome news that the Pennsylvania Public Employee Retirement Commission has accepted the city of Pittsburgh's proposal to direct future parking tax revenues to its pension plan. But this proposal is by no means a long-term solution to what remains a severely underfunded liability that could threaten the city's future financial stability.

The "pension fix" that city council approved at the close of last year merely addressed the short-term challenge of averting the increased annual costs of a state takeover. With the threat of a takeover now behind us, it is time to address the long-term challenge of fully funding the city's pension liability.

Such a plan must involve a commitment from city leaders, rank and file employees, both active and retired, and the residents and taxpayers whom we all serve.

We must first recognize that the city has made a promise, upon which its retirees and active employees have relied, that a pension earned will be dependably provided. We must also recognize that the current pension situation is not financially sustainable without a continued funding commitment and needed pension reforms, at both the local and state levels, to hold down costs.

On the funding side, it is disappointing to see that Mayor Luke Ravenstahl's 2012 budget takes a huge step backward. The annual pension benefit paid out to current retirees is in excess of $80 million. The mayor's proposal to reduce payments to the pension fund in 2012 is both irresponsible and misguided.

With new directed parking revenue of more than $13 million annually and annual state funding averaging around $15 million, it is unconscionable that the mayor would attempt to go back on his prior commitment to provide at least $60 million annually for the pension plan. His 2012 proposal falls about $10 million short.

Let us hope that budget deliberations in the Intergovernmental Cooperation Authority (the state's financial oversight board) and city council result in a conscientious increase in this line item.

However, the city and its pension fund are not in this difficult financial position only because of inadequate funding through the years. It is also necessary to take a close look at pension reforms that would help hold down the exploding costs of pension benefits.

We must take a new look at retirement ages for our police and fire personnel who today can fully retire at age 50. We must base all retirement benefits on base salary and end the practice of "spiking" -- pumping up compensation in the final working years to set higher pension levels.

Defined-benefit plans like the city's are expensive. If this benefit is to be maintained, we will need to increase the employee contribution to the fund and provide, at least voluntarily, a defined-contribution plan for new employees.

We need to adopt significant cost control measures on health insurance and consider the cost/benefit analysis of being self-insured for health care. Consolidating the police, fire and municipal pension offices into one pension office would generate additional savings.

There is much that can be done today to solidify our pension fund into the future. City council took a good first step at the close of last year by solving the short-term problem. Now we need to meet the long-term challenge through reliable funding and pension reform.

Associated Press

Michael E. Lamb is controller for the city of Pittsburgh (michael.lamb@city.pittsburgh.pa.us).

First published on October 13, 2011 at 12:00 am