The time has come for reforms to the retirement programs offered by county governments in Pennsylvania.
Deputy York County Controller Deb Myers and I recently had the opportunity to meet with state Rep. Seth Grove to discuss two important legislative initiatives that would benefit taxpayers as well as current and former York County government employees.
The first and most significant change over the long term would allow county governments to implement a defined contribution system for new employees, one similar to the 401(k) programs that are prevalent in the private sector. Pennsylvania state law currently prohibits such plans for counties.
York County's pension fund is healthy and our investment returns were among the strongest in the nation last year. In 2013 the fund value increased from approximately $252 million to just over $300 million.
However, past performance does not guarantee future success.
Despite strong returns, taxpayers are still contributing millions of dollars per year to keep the plan properly funded. This year the county was required to make a $10 million Annual Required Contribution, or ARC, payment. The best way to combat the vagaries of pension fund health and performance and ease the burden on taxpayers is to convert to a defined contribution plan.
The commissioners would honor our obligation to current and former employees. Only new employees would participate in such a plan. There would be no immediate positive impact on the county budget, but over time the ARC payment would decrease as current employees retire and are replaced by those who will participate in the defined contribution system. The change would dramatically improve the overall financial strength of county government
The lack of such reform has proved disastrous elsewhere.
The state of Michigan converted to a 401(k)-style plan in 1997 while the city of Detroit failed to follow suit. Today Detroit is bankrupt, and its unfunded pension obligations are the major cause of Motown's financial distress.
Cities large and small across our commonwealth are facing similar nightmares for the same reasons. County government must take a proactive approach to this issue and take steps today to prevent future problems.
In our meeting with Rep. Grove I also expressed support for his efforts to allow our county retirees to receive long-overdue cost-of-living-adjustments, or COLAs, without having to raise taxes on all York County property owners. Rep Grove is crafting a proposal that would give some flexibility to county government in the granting of COLAs to retirees.
York County currently has 1,050 retirees who are receiving retirement benefits as of Dec. 31, 2013. We have been unable to offer a COLA to retirees since 2008 due to a rigid and archaic set of commonwealth rules that govern the implementation of such an adjustment. Under current law the increase must be retroactive back to the date of retirement. Also, we simply can't offer a reasonable 1 percent to 2.5 percent increase that we annually try to provide for current employees to keep pace with the naturally rising costs of goods and services. If the county had elected to give retirees a COLA in 2014, it would have cost taxpayers $9.8 million and triggered a tax hike.
Rep. Grove's proposal would allow counties to issue retirees COLAs that reflect the Cost of Living Index for that particular year and would not be retroactive to a retiree's original date of departure. Rep. Grove's common-sense approach would help York County make good on our obligation to retirees without having to raise taxes.
I commend Rep. Grove for his efforts assist county government through reforms and allowing commissioners across the commonwealth to pass annual budgets that reflect the economic realities of the day.
— Chris Reilly is a Republican York County commissioner.