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That’s more than half of the 55 municipal plans that were reviewed in Luzerne County.
A state report released Monday shows that more than half of the municipal pension plans within Luzerne County are financially distressed.
The report, issued by the state Public Employee Retirement Commission, shows that pension plans in 19 of the 55 Luzerne County municipalities reviewed are “minimally distressed,” while another nine are considered “moderately distressed.” The other 27 plans are considered to be within acceptable funding ratios.
PERC regulates and monitors the performance of municipal pension plans statewide. This year marked the first time the agency has compiled a report that identifies the distress level of each plan, said Bernard Kozlowski, the agency’s deputy director of programs.
Kozlowski said the agency’s goal is to help municipalities identify troubles sooner so that corrective measures can be taken before the plans get to the distressed level.
The key element is a plan’s funding ratio, which measures the percentage of the plan’s liability that is covered by its assets. A pension plan is considered minimally distressed if it has a funding ratio of 70 to 89 percent; a ratio of 50 to 69 is considered moderately distressed, while those with a funding ratio of 50 percent or less are deemed severely distressed.
The analysis showed that Hazleton city is in the worst shape of all the Luzerne County municipalities that were reviewed. The city has two pension plans, one for non-uniformed employees and a combined plan for firefighters and police. The plans had a combined liability of $49.9 million compared to assets of $26 million – a deficit of $23.9 million. That translates to a funding ratio of 52 percent.
Many other municipalities in Luzerne County had plans whose liabilities exceeded their assets, but that does not mean the plan is distressed, Kozlowski said.
For instance, Wilkes-Barre city’s plan had assets of $84.1 million compared to liabilities of $108 million, for a $23.8 million deficit – nearly identical to Hazleton’s. Yet Wilkes-Barre’s funding ratio (liability divided by assets) is 78, placing it in the minimally distressed category.
The fact a plan is in a distressed state does not necessarily mean it won’t be able to meet future obligations, but PERC wants to ensure the issues are addressed, Kozlowski said.
Municipal pension plans are funded by the state, municipality and, in most cases, contributions made by employees. Each year an actuarial study is conducted to determine how much money the municipality must contribute, known as the minimal municipal obligation, or MMO.
For those plans deemed to be in a distressed state, what, if any, action must be taken to address the issue depends on the severity of the distress level.
A law passed last year requires municipalities with moderately distressed plans to submit a plan of action to improve the plan’s financial state. If the municipality has more than one pension plan, it must also agree to aggregate funds from all its pension plans for investment and administration purposes.
There are several voluntary measures that can be taken as well, including requiring employees to contribute to the plan (if they do not already), increasing the municipality’s contribution (MMO) to the pension fund and revising benefits for new hires.
For plans that are severely distressed, revising benefits for new hires becomes mandatory along with submission of an improvement plan and the aggregation of the funds from all plans.
Those that are minimally distressed are not required to take an action, but the state suggests administrators consider implementing the same voluntary measures detailed for moderately distressed plans.
In Hazleton’s case, the city missed inclusion in the severely distressed category by two percentage points. Its pension plans have been plagued by financial troubles for years. Those problems were exacerbated by significant investment losses that also caused problems for many other pension plans, said Mary Ellen Lieb, acting director of administration for the city.
“I don’t think there are many pension plans that are doing very well or that have recovered from the economic crisis,” Lieb said.
Lieb said the city has taken measures to address the financial problems, including revising benefits for new hires. The city altered the plan about a year ago so that it no longer provides health care, dental and vision coverage for retirees.
Lieb said it will take years for those changes to have any meaningful impact on the plans’ financial health. She said the city has contacted its actuary and will discuss other possible remedies to boost the plans’ financial soundness.
“We will look into mandatory and voluntary remedies and will implement whatever is suggested to us,” she said. “I don’t think we are going to see it happen overnight, but we hope with new features we’ve implemented we will gradually see it start to recover.”