Municipal Pension Reporting Program (Formerly Perc) Harrisburg 17120
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March 2021 A Summary of 2018 Municipal Pension Plan Data Based on the January 1, 2019, Actuarial Valuation Reports Submitted Pursuant to Act 205 of 1984 & 2017 County Pension Plan Data Based on the January 1, 2018, Actuarial Valuation Reports Submitted Pursuant to Act 293 of 1972 COMMONWEALTH OF PENNSYLVANIA MUNICIPAL PENSION REPORTING PROGRAM (FORMERLY PERC) HARRISBURG 17120 March 2021 Members of the Pennsylvania General Assembly and Governor Wolf: Pursuant to Act 100 of 2016, the Department of the Auditor General took over responsibility for collection and biennial reporting of the commonwealth’s municipal pension plans status. I am pleased to submit the Municipal Pension Reporting Program’s (formerly the Public Employee Retirement Commission) biennial report on the status of the commonwealth’s local government pension plans for your review and information. Similar to prior years, my department will be providing additional analysis of this data in early 2021. Pennsylvania’s pension plans for local government employees in total represent one of the largest retirement systems in the nation. Currently, there are more than 3,300 local government pension plans in Pennsylvania and the number continues to grow. Unfortunately, the struggle to properly fund the plans also continues to grow. Many municipalities face financial hardships as well as the reality of more retired members drawing from pension plans than active members contributing to the plans. This status report provides a snapshot of the condition of local government pension plans throughout the commonwealth. Reported data shows that 98 percent of the pension plans in Pennsylvania are considered small (fewer than 100 members). This is significant to the overall health of pension plans in Pennsylvania because the reported data shows that small pension plans generally have higher administrative expenses, are more affected by the dramatic increases in municipal contributions, and suffer more acutely from low investment returns caused by often volatile market conditions. Likewise, data shows that although most pension plans in Pennsylvania are considered not distressed, the largest percentage of active membership is in pension plans that are considered severely distressed. This statistic is sobering when considering how, without significant reform, some municipalities may be forced to reduce services to meet pension obligations. On behalf of the Department of the Auditor General, I am hopeful that you will find this report to be informative as well as useful to illustrate the issues that require attention in order to protect both taxpayers and retirees. Sincerely, Timothy L. DeFoor Auditor General iii TABLE OF CONTENTS Introduction ................................................................................................................................................. iii Preface ......................................................................................................................................................... 1 Part I Executive Summary .................................................................................................................... 2 Part II General Characteristics ............................................................................................................. 3 Number of Plans ................................................................................................................. 3 Nature of Plans ................................................................................................................... 4 Size of Plans ....................................................................................................................... 7 Part III The Recovery Program .............................................................................................................. 9 Distress Score ..................................................................................................................... 9 Part IV Data Tabulations ....................................................................................................................... 14 iv PREFACE The following report contains data and discussion on the local government pension plans of the Commonwealth. For the purposes of this report, the local government pension plans established by municipalities subject to the reporting requirements of Act 205 of 1984 are termed “municipal pension plans,” while the local government pension plans established by counties that continue to report under the provisions of Act 293 of 1972 are termed “county pension plans.” Where data is combined for municipal and county pension plans, the report uses the term “local government pension plans.” The data presented in the report was extracted from the individual pension plan reports containing actuarial, financial and demographic information. The municipal pension plan reports submitted under Act 205 requirements covered the 2018 plan year, while the county pension plan reports submitted under Act 293 requirements covered the 2017 plan year. Throughout the filing periods, the Municipal Pension Reporting Program (MPRP) endeavored to ensure the reported data was complete and accurate. To the degree possible, the data provided in the individual reports was reviewed for completeness and internal consistency. In extracting the data from the database and in compiling this report, MPRP endeavored to minimize typographical errors and omissions. Starting with the 2019 filing period, the Act 205 reporting forms are now required to be submitted electronically on the Department of Community & Economic Development’s Municipal Statistics website. When this report was prepared for publication, twenty-eight municipalities with one or more municipal pension plans remained delinquent in submitting the required Act 205 reports for the 2019 valuation year. Consequently, data for thirty-one municipal pension plans could not be included in this report. However, the omitted data is not statistically significant due to the small size of the pension plans involved. 1 PART I EXECUTIVE SUMMARY AMENDMENT OF THE ADMINISTRATIVE CODE — ACT 100 OF 2016 AND MUNICIPAL PENSION REPORTING On July 20, 2016, Act 100 of 2016 was signed into law amending the Administrative Code (P.L. 177, No. 175), to transfer the powers and duties of the Public Employee Retirement Commission (PERC) to both the Independent Fiscal Office and the Department of the Auditor General. The former commission’s duties relating to municipal pension reporting and analysis under The Municipal Pension Plan Funding Standard and Recovery Act (Act 205 of 1984) and the Municipal Pension Systems, Regulating Act (Act 293 of 1972) were transferred to the Department of the Auditor General which then created the Municipal Pension Reporting Program within its Office of Budget and Financial Management. Effective August 1, 2016, all duties were fully transitioned to the newly created Municipal Pension Reporting Program (MPRP). ACT 205 AND THE MUNICIPAL PENSION REPORTING PROGRAM (MPRP) Act 205 provides a uniform actuarial funding standard for funding municipal pension plans in Pennsylvania. The Act 205 funding standard was first effective for municipal pension plans in 1986. Prior to 2016, the Act 205 funding standard was monitored by PERC. Now, MPRP monitors compliance with the actuarial funding standard described in Act 205. MPRP monitors compliance by collecting and compiling data from local government pension plans pursuant to the reporting requirements set forth by Act 205. Act 205 also requires disclosure of instances of noncompliance. Disclosure must be made in a public status report to the Governor and General Assembly. This is the third status report under the MPRP. The report contains: an overview of the general characteristics of pension plans in Pennsylvania; the funding practices of municipal pension plans and the funding status of the plans in Pennsylvania; an overview of the recovery methods provided by Act 44 of 2009; and data tabulations that show general municipal pension plan data. 2 PART II GENERAL CHARACTERISTICS NUMBER OF PLANS Pennsylvania has a complex system of local government comprising more than 4,600 governing units. General purpose local governments — cities, boroughs, towns and townships — total approximately 2,600 governing units. Special purpose local governments — municipal authorities — total approximately 2,000 governing units. Counties total approximately 66 governing units. In most instances, general purpose local governments establish separate pension plans for their police, fire and nonuniformed employees, while special purpose local governments and counties generally establish one pension plan for all employees. Exhibit 1 shows the number of local government pension plans grouped by the type of employee and by the type of local government as of 2019. Exhibit 1 NUMBER OF LOCAL GOVERNMENT PENSION PLANS Police Fire Nonuniformed Total County 0 0 71 71 City 59 46 65 170 Borough 460 22 621 1,103 Township (1st Class) 89 6 124 219 Township (2nd Class) 296 13 898 1,207 Authority 0 0 483 483 Council of Gov’t/Regional 35 3 25 63 Total 939 90 2,287 3,316 3 Exhibit 2 shows the growth in the number of local government pension plans since reporting requirements were initiated in 1974. Although reporting irregularities, varying reporting criteria, and reporting frequency change affected data, the general trend is clear — the number of local government pension plans in Pennsylvania continues to increase.