Pattye Benson

Community Matters


Tredyffrin Receives 92% Fund Ratio Score from PERC

On January 21, 2013, a letter to the editor appeared in Main Line Suburban Life written by Chris Smith of Paoli. In his letter, ‘Willistown’s pension-fund shortfall must be addressed’ , Smith questioned how the supervisors planned to finance the $2.6 M pension shortfall? Smith pointed out that Willistown’s EIT is already at the highest level legally permitted.

Due to their pension shortfall, Willistown Township has received a Fund Ratio Score of 77 from Pennsylvania’s Public Employee Commission (PERC) that means that Willistown is only 77% funded against its liability. Every two years municipalities are required to submit their actuarially determined liabilities and in December PERC released their report, ‘Act 205 Distress Scores Based on the 2012 Actuarial Valuation Reports – 12/12/2012’. All municipalities contained in the report have listed all of their reported pension plans filed with PERC. The distress score based on the aggregate funded ration of a municipality’s pension plan. The score is used to determine a distress level and a municipality’s corresponding funding ratio.

Willistown’s Fund Ratio Score of 77% was an improvement from 2010 when PERC listed their pension funding at 65%. A Community Matters reader sent me Smith’s letter and suggested that I review the report for Tredyffrin. According to the December actuarial report from PERC, Tredyffrin Township received a Fund Ratio Score of 92%. In 2011, Tredyffrin reported assets in its public pension fund of $36,994,373 and liabilities of $40,257,326 for a shortfall of $3,262,954. Willistown’s Fund Ratio Score improved during the previous two years, Tredyffrin’s unfunded accrued liability of $1.4 M ranked a slightly higher 94% PERC score in 2010 versus 2012.

Of the 51 Chester County municipalities listed in the report, unfortunately approximately 50% received rankings in the ‘distressed’ category – Thornbury Township received the distinction of receiving a ‘severely distressed’ ranking of 23% with assets of $7.6 M as opposed to liabilities of $33 M. Twenty-five Chester County municipalities are listed in the ‘not distressed’ category including Tredyffrin Township. It was interesting to note that several Chester County municipalities received extremely high Fund Ratio Scores from PERC including our neighbors, Malvern Borough (122%) and East Goshen Township (125%).

In addition to Tredyffrin’s pension fund ratio score of 92%, there is some encouraging economic news – this month, Auxilium Pharmaceutical announced its moving its corporate headquarters to Lee Road in Chesterbrook and yesterday we learned that Teleflex, a medical device manufacturer is moving its headquarters from Limerick Township to Swedesford Road. With Auxilium and Teleflex moving into the township, that’s 300+ new Tredyffrin workers.

Underfunded Pennsylvania Pension Funds Need Real Reform

Pennsylvania is facing a multi-billion dollar public pension crisis – now is the time for pension reform in Harrisburg. The Public School Employees Retirement System (PSERS) and the State Employees Retirement System (SERS), the two systems administering retirement accounts for state and public school employees, are severely underfunded and will become insolvent without an increase in taxpayer contributions.

In discussing the need for pension reform, in December 2010, I wrote . . .

“did you know that more than half the state’s municipal pension plans are less than 90 percent funded? Calculated as the ratio of assets to liabilities, 644 municipal pension plans are labeled as “distressed” by the state’s Public Employee Retirement Commission (PERC). Of those, 26 are less than 50 percent funded and branded as “severely distressed.”

I cannot speak for the accuracy of those numbers thirteen months later, but I have to believe that they have not improved.

One of the last bills signed into law as Gov. Rendell was leaving office was HB 2497, which became Act 120. But instead of reforming the defined-benefit pension system, this legislation ‘kicked the pension can’ further down the road, by deferring pension payments and increasing the unfunded liability by billions of dollars in lost investments and interest – in essence, leaving the problem on the shoulders of our children and grandchildren.

In the old days, the nature of traditional pension coverage in the private and public sector was quite similar; the majority of all employees were covered by a defined benefit plan where the liability of the pension lies with the employer. However, there is a reason why in the last decade that the vast majority of private sector employees have turned away from defined benefit plans to some form of a 401(k) type plan – the challenge of keeping a defined-benefit plan, particularly in our unstable economic climate, has proven too great for most companies to bear.

Defined-benefit plans may provide the best financial safety net for employees, but most private sectors can no longer afford to maintain them – the strain on the company balance sheets has proved too large for firms to withstand. And even in the case where a company struggled to keep a traditional defined-benefit plan in place, the economic downturn has prompted plan changes whether they were preferred or not.

Teachers and state workers should not be targeted as public enemies because of their benefit packages. However, I just do not see how their defined-benefit plan (in its present form) is sustainable for the future. Clearly, pension reform should not affect any vested state employees or pensioners already in the system – changes should only affect future employees.

From the taxpayer side, we are angry because we have to make up the state’s pension fund losses as we watch our own 401(k) accounts depleting. The teachers argue they never took a vacation from paying into the system and that a pension is necessary to attract and keep good teachers. Pennsylvania State Education Association (PSEA) the state’s largest teachers union is on record that will oppose any proposed changes to Act 120, such as a 401(k) type of defined contribution plan. This is a catch-22 situation; we want to maintain a high quality of teachers and state workers in Pennsylvania, but we cannot afford the current pension price tag.

During the last election cycle, there was much discussion from school board candidates about the District’s financial situation and possible solutions, including imposing an earned income tax. Some candidates believed that because the financial problems were caused by Harrisburg, that it should be up to the state to find the solution, not the school districts (taxpayers). Candidate and now re-elected school board president Karen Cruickshank called on the state to “fix your mess” and suggested that residents contact their legislators and the governor to push for pension reform.

State Rep Warren Kampf (R-157) has an editorial, “Change the pension system to help taxpayers” in today’s Phoenixville Patch. In the article, Kampf states that his pension reform legislation,

“will require all new state employees and those hired by school districts to participate in a defined contribution plan (like the 401k-style plan that is prevalent in the private sector) where the taxpayer would be required only to match the employee’s contribution. This would be in lieu of the traditional defined benefit pension plan”.

Under Kampf’s plan, state employees would have a system similar to the private sector where an employee owns their 401(k) plan and takes it with them if they leave the job. In a Community Matters article from December 2010 (cited earlier) I wrote,

“. . . As another form of fiscal responsibility, Kampf announced that he would not be taking the state’s defined-benefit pension plan and will work on the creation of a defined 401K-type plan for legislators and state employees.”

I have not agreed with all of Kampf’s votes since he took office, but to give credit where due . . . Kampf’s promise to work on pension reform were made prior to his taking office in 2011, and today we learn that he plans to introduce his proposed reform legislation this spring. (Click here to read the Phoenixville Patch editorial).

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