Thank you for the overwhelming response to our last email which detailed the present parking-pension problem. If you did not have a chance to read it, you can still find it here at Reform Pittsburgh Now (Part I, Part II). Many of you had questions regarding the city’s pension plan and many of your questions were the same. Let me try to address the major questions. Many of you wanted to know why the city is not trying to change the pension plan for present workers. First, I don’t believe you should break a promise and we have promised our present and past employees certain benefits. Secondly, the PA State Constitution prohibits any municipality from changing pension benefits to municipal employees. Many of you were interested in changing future plans to a “defined contribution” plan from our present “defined benefit” plan. Again, state law prohibits any municipality in PA from offering a defined contribution plan — even to future employees. We were asked by many people why we would not change the rules allowing Police Officers and Firefighters from receiving pensions at the age of 50 — again, that law was created for the City of Pittsburgh, by the state. In fact, almost all the rules that we must follow regarding our own city pension plans have been dictated to us by our state legislature. At the end of this email is a chart for you to see many of these laws.
The most popular question was “How did Pittsburgh end up with the worst funded pension plan in the country?” There are several answers. From the chart below, you can see how unfunded mandates from the state caused us to create a plan that was out of our direct control. This is coupled with a state plan (Act 205) that penalizes cities like Pittsburgh that reduce their payroll. Through Act 47, we reduced the number of city employees by nearly 25% — from approximately 4,500 employees to 3,500. However, the state formula for funding is based on the number of present employees, not retirees. With less city employees, the city receives less from the state, but has more retirees. More people take out of the system and less put in, so the problem is compounded. Additionally, the city has made very liberal assumptions when it comes to our pension plan. For years we have assumed our pension investments would return nearly 9%, when most municipalities were assuming a more conservative 6 – 7%. Also, we made risky investments and locked into very high interest rates when we borrowed funds to put into the pension plan. Our interest payments on borrowed money are greater than the rate of return on our investments — not a good way to administer a plan. So, we end up where we are today — with a system where we take out over $80 million every year and put in around $50 million — a broken system.
As Finance Chair, I worked with our budget office to create a PowerPoint discussion of the problem facing our pension plan. It can be found here.
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