Pennsylvania's auditor general released a report Wednesday identifying York City's firefighter and police pension funds as "moderately distressed," a designation that puts the city in good company with much of the state.

According to the report, more than a third of Pennsylvania's local-government retirement plans are financially distressed.

To fix that problem, Auditor General Jack Wagner is proposing to consolidate 2,600 municipal pension plans into a statewide system. Wagner predicts the system would yield higher investment return rates and reduce administrative expenses - saving taxpayers money.

"Pennsylvania has too many small and underfunded municipal pension plans that could cost taxpayers millions of dollars to maintain," Wagner said, according to a news release. "Consolidation is the best way to preserve benefits for retirees and future retirees while protecting taxpayers from higher tax bills they can't afford."

Wagner's report - presented to the Public Employee Retirement Commission - reveals that 2 percent of the state's pension funds are "severely" distressed. Of the state's 2,600 pension funds audited by the auditor general's office, 52 are in the worst shape, meaning they are funded with less than 50 percent of their plan liabilities.

In York City, the situation is most severe for its police pension fund, which is only 55 percent funded. The firefighter fund is at 60 percent.

York City resident Trisha Melikian, who is a public accountant at Flickinger & Co. in West York, said the auditor general's consolidation proposal "makes a lot of sense."

"It puts the funds in the hands of professional fund managers, it lowers administration costs, and would lessen the problems some municipalities seem to have keeping compliant with state regulations," she wrote in an email.

Melikian said another solution might be "to give public workers the sort of defined-contribution benefits that we get in the private sector."

"Then the municipalities wouldn't be left with unfunded pension liabilities or escalating pension costs that get hoisted on the taxpayers," she wrote.

York City business administrator Michael O'Rourke wrote in an email that he thinks the auditor general's recommendation is a step "in the right direction."

He called the idea "more sensible than turning all public pensions into defined contribution plans, which would have the effect of turning 3,200 plans into 250,000 plans."

"Of course the devil is in the details," he wrote. "For example, if all police and fire pensions were combined, would they have a uniform benefit structure? Would pension benefits be taken out of the collective bargaining process? Would the plans be portable throughout Pennsylvania?"

Pension funds in West Manheim and Penn townships and the York Area Regional Police Department are also "moderately" distressed, according to the report.

The city's pension fund for non-uniformed employees is 87 percent funded and considered "minimally distressed," according to the report. Twenty-three pension funds in other parts of York County are in the same category.

Of the 52 pension funds considered "severely" distressed, none are in York County.

The auditor general's full report is available to the public at www.auditorgen.state.pa.us.

- Erin James may also be reached at ejames@yorkdispatch.com.