Municipal pensions: A problem that just won't go away
York City Council hopefuls are expressing concern over the city's unfunded pension liabilities, but it's far from the only municipality struggling.
With York City's whopping $74 million in unfunded pension liabilities, there's still another $30 million spread throughout other municipalities in York County. That $104 million total is the 10th highest in the state, according to 2017 data from the state attorney general's office.
"Pension reform is going to be a key for all the municipalities to address their unfunded liabilities," said West Manchester Township Manager Kelly Kelch. "Until that is done, there’s not a lot of ways a township can really look to solve the problem. We're mostly just managing the problem.”
Most municipalities have the same "how we got here" story: The population and lifespan of retirees is growing, municipalities made irresponsible pension increases in the past and defined benefit pension plans have left them chained to obligations they now can't afford.
Unions, worried about their collective bargaining in the pension debate, have successfully battled some proposed municipal pension reform measures in the state Legislature.
"(Collective bargaining) is the foundation for all the police offers to bargain over these pension benefits," said Lt. Matthew Emig, president of the York County Fraternal Order of Police Lodge 73. "That leveled the playing field for employees who can't strike when it comes to negotiating their benefits."
Under the current system, municipalities in the state have garnered nearly $8 billion in unfunded municipal pension liabilities, according to the auditor general's office.
With 324 employees and a 59% funded pension system, York City accounts for roughly 71% of the liabilities in the county. Those unfunded liabilities alone are $14 million more than those held by the county, which employs about 2,200 individuals.
“It’s an obligation that the city has," said Thomas Ray, the city's acting business administrator. "You could equate it to the anticipation that Social Security may dry up one of these days.... It's very serious."
Ranking second behind York City is West Manchester Township, which has about $3.8 million in unfunded pension liabilities and is 76% funded. The township employs 53 people.
A few years ago, West Manchester became one of 36 municipalities in York County to switch to a defined contribution plan. That's similar to a 401(k) plan, and it's technically always fully funded and viewed as a long-term way to combat liabilities.
Meanwhile, most municipalities in the county use a defined benefit pension plan, where an employer ponies up all of the costs and promises the employee a certain amount upon retiring.
Only 13 municipalities with defined benefit plans have fully funded pension systems in York County, and the rest are on the hook for liabilities ranging from a few thousand dollars to millions.
Many municipalities have been negotiating to switch to a more defined contribution-like pension plan. But they also have to follow Act 600, a state law that created mandated minimum pension benefits for police.
Changes unions — police unions specifically — would like to see, Emig said, would be a statewide pension system for municipal police and firefighters to streamline the process rather than having many expensive pension systems for each municipality.
The cash-strapped areas do get some help amid what many deem a crisis, thanks to a 2% state tax on casualty and fire insurance premiums paid to out-of-state insurance companies managed by the state attorney general's office.
The office distributed roughly $300 million to municipalities last year alone. York County municipalities received $8.6 million of that, but it was still a small chunk of the liabilities that have been building for decades.
Further aid through proposed reform has been floated at the state Capitol, too.
Following a 2015 analysis of municipal pensions, Auditor General Eugene DePasquale emphasized the severity of the issue and called for reform.
“There clearly is a consensus — among those on all sides of the pension issue — that we must act quickly to address the challenges with our municipal pension system,” DePasquale said in 2015. “To delay action any longer could threaten the economic stability of our communities and our state as a whole. Our recommendations will require discipline at both the state and local levels, but continued inaction is simply not an option.”
The recommendations included increasing accountability among municipal pensions, requiring underfunded pensions to adopt new investment and benefit standards, and creating a new statewide defined benefit structure for all new hires.
Some of those suggestions have been adopted into legislation, including that of Rep. Seth Grove, R-Dover, and Rep. Keith Greiner, R-Lancaster.
For the past three legislative sessions, Grove has pushed legislation that would affect new hires in all townships, boroughs and cities, except Philadelphia, with full-time public safety personnel.
“After Detroit’s bankruptcy case, you should be worried about municipal pensions,” Grove said. “I don’t want to see uniformed retirees getting pennies on the dollar because their pension plan’s insolvent.”
After a certain date, new hires would be placed in a tweaked defined benefit plan with a balance made up of mandatory employer and employee contributions, along with an employer-guaranteed interest credit.
Current employees would maintain their existing plans and benefits, but those benefits would be frozen at current levels. Each municipality would maintain two plans until there are no more beneficiaries in the older defined benefit plan.
Finally, it would remove pension benefits from the collective bargaining process —something unions would never bite on.
The bills haven't gained traction because Democrats don't want to pick a battle with unions. And even though Republicans are proposing the reforms, colleagues with districts not hit so hard by pension liabilities aren't lending much help.
Grove plans to tweak the language of the bill to help get more lawmakers on board. That entails focusing more on keeping municipalities more transparent and responsible with their pensions and improving oversight rather than tinkering with the plans' structures.
— Logan Hullinger can be reached at email@example.com or via Twitter at @LoganHullYD.