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Audit Coming for Pittsburgh Pensions

Pennsylvania Auditor General Eugene DePasquale and Pittsburgh Mayor Bill Peduto announced on Wednesday plans to audit the city’s municipal pension funds.

DePasquale said the audit was routine and not triggered any suspicions in particular.

Part of the audit’s purpose will be to see whether the pension systems implemented recommendations made during the city’s previous audit in 2011.

From WESA News:

In an effort to ensure the pension plans for police, firefighters and municipal employees do not become a financial liability, Pennsylvania Auditor General Eugene DePasquale has launched an audit of those plans. Peduto joined the auditor general for the announcement, saying it’s time to dig deep into Pittsburgh’s numbers.

“Get a true and accurate accounting of where we are, make it available so the public can see it, then do what we do in Pittsburgh — solve the problem,” Peduto said.

The overall goal of the audit is to determine if the pension fund is administered in compliance with applicable state laws, regulations, contracts and local ordinances and policies and to determine if municipal officials took appropriate corrective action to address the findings contained in a prior audit report. The prior audit report, covering 2010 and 2011 made several recommendations to address the underfunding of municipal pension plans.

Pittsburgh’s pension systems are among the least-funded of any city in the state. From the Pittsburgh Post-Gazette:

With assets of about $675 million and liabilities of about $1.2 billion, Pittsburgh’s funds for retired police, firefighters and other municipal employees is considered “moderately distressed” by the state Public Employee Retirement Commission.

Pittsburgh’s pension went from nearly 62 percent funded in 2013 to 58 percent in 2014, Mr. DePasquale said, partly due to market conditions and partly because of a reduced expected rate of return pushed through by outgoing Mayor Luke Ravenstahl’s administration late last year. Though lowering the rate of return may have been prudent, not budgeting money to account for the gap was not, Mr. Peduto said.

“We basically shorted our pension fund under the guise of good government,” he said.

In Pennsylvania, Pittsburgh’s unfunded liability of $485 million is second only to Philadelphia’s, which is $5.3 billion.

The audit is expected to take one to two months.

Photo by Sakeeb Sabakka via Flickr CC License

Audit Estimates Legal “Pension Spiking” by CalPERS Members Could Cost State $800 Million

The California Controller released an audit on Tuesday that found a particular brand of “pension spiking”, although perfectly legal, could cost California $800 million over the next 20 years. From California Healthline:

Dozens of public agencies that contract with CalPERS have engaged in a legal form of pension spiking, putting the state on the hook for nearly $800 million over the next 20 years, according to an audit released Tuesday by the State Controller’s Office, AP/KPCC’s “KPCC News” reports (“KPCC News,” AP/KPCC, 9/9).

The legal practice involves employers withdrawing commitments to cover employees’ pension costs in their final year of work and instead adding the value of the payment to the employee’s salary. The practice was legal under a 1993 law but has since been prohibited for new employees.

The audit found that 97 agencies that contract with CalPERS have amendments allowing them to engage in the practice.

The amendments increased CalPERS members’ compensation by $39.1 million in pensionable pay annually, which could result in as much as $796 million in such compensation over two decades.

The audit found that CalPERS doesn’t have the resources to audit the 3,000 agencies with which it contracts. CalPERS said it has hired more staff recently to combat that issue, but it’s not enough. From California Healthline:

The pension fund also has insufficient resources for auditing all of the 3,100 public agencies with which it contracts. For example, the audit found that a local government contracting with CalPERS would only be audited by the pension fund every 66 years. Since the audit was performed, CalPERS has hired more staff, but the agency is still only capable of performing audits on a contracting entity once every 33 years, according to the controller’s office.

In a release, Controller John Chiang (D) said the prevalence of such issues “invites abuse” and that the pension fund “must be more vigorous in protecting taxpayers from this form of public theft.”

View the Controller’s entire audit here.

Photo credit: Lending Memo

Pennsylvania Auditor General Calls For “State-Wide Solution” After Audit Reveals Scranton Pension System Could Be Broke Within 3 Years

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After a two year audit, Pennsylvania’s Auditor General announced today that Scranton’s pension system could become broke in 3 to 5 years—and forcefully indicated that Scranton was symbolic of larger, state-wide pension funding issues.

On Scranton, the Times-Tribune reports:

That dire prediction [3-5 years] could be optimistic, as the pension funds face paying out as much as $10.5 million owed to retired police and firefighters because of the $21 million back pay court award to active members. The auditor general’s office did not evaluate the impact of the award in its audit released Wednesday.

With a funding ratio of just 16.7 percent, the city’s firefighters fund is in the worst condition of any plan in the state, Mr. DePasquale said, and will be unable to pay benefits in less than 2½ years. The non-uniform fund isn’t much better, projected to be insolvent in 2.6 years, while the police fund has less than five years.

The sobering news, presented at a press conference at City Hall, is contained in an audit Mr. DePasquale’s office conducted of the funds’ condition from January 2011 to January 2013.

The Auditor General said the only fiscally sustainable way forward was to reform the state’s pension system. From the Times-Tribune:

He’s called for several measures, including consolidating plans into a statewide system and increasing funding to municipalities with distressed plans.

“We don’t see any way this can be fixed by Scranton alone,” Mr. DePasquale said. “I believe strongly that a statewide solution is needed.”

While Gov. Tom Corbett and the state Legislature debated state pension system reform this summer, it has yet to address the pension crisis some municipalities face. When Mr. Corbett visited Scranton earlier this month and a reporter asked about the city’s pension crisis, he declined to weigh in.

But that reform doesn’t seem likely to come.

Pension360 covered this week Corbett’s futile efforts to kickstart pension reform. Polls have indicated the voters aren’t as engaged by pension issues as they are other issues.