What Does Future Hold for Alco Pensions?

Member Group : Allegheny Institute

(October 3, 2012)–The audited data for Allegheny County’s Retirement
System shows that from 2005 until 2011 the system has slipped in
health and the County is putting in a smaller percentage of what is
required to keep the pension system on track for a strong funded

Earlier this year we produced a full length report on the
characteristics of the Retirement System and not long after that the
firm that audits the County’s pensions released its most recent audit
that provides the key information on the system for the County’s
taxpayers, employees, and the stewards of the plan, i.e., the seven
member Retirement Board. For 2011, the County and its employees
added $46.9 million in contributions while investments and other
income brought total additions to $59 million. That same year $73.2
million was deducted from the plan to cover benefit payments ($68
million), employee refunds ($4 million), and just over $1 million in
expenses related to the administration of the plan.

At the beginning of 2011 the plan had $699 million in actuarial
assets against $1,191 million in actuarial liabilities. Measured as
a ratio of assets to liabilities known as the funded ratio, the
System was 58.7 percent funded. Since 2005, based on tables at the
end of the audit, the value of assets increased and then took a bit
hit in 2008, falling from $798 million as of January 1, 2008 to $582
million as of January 1, 2009. Liabilities have steadily increased
over that same time frame, and the funded ratio, which was an
enviable 85 percent in 2005 stood below 60 percent last year.

There has to be a silver lining somewhere in that finding. It could
be that the County has been here before: our report obtained pension
data going back to 1986 when the funded ratio was barely above 50
percent. It climbed steadily and surpassed 100 percent in 2000. If
there were good fiduciary practices in place separate from investment
performance that drove that solid record, then history could be a
guide for the County’s pension managers. The County also has a
favorable situation where there are more active workers than retired
workers in the plan, the exact opposite situation at the City and the
Port Authority where retirees greatly outnumber active employees.

However, it is important to counterbalance those two positive
attributes with another more troubling one to go along with the
slipping funded ratio. Specifically, as a percentage of its annual
required contribution (ARC), the County has been putting much lower
amounts in recent years (see table below). As defined by the
Governmental Accounting Standards Board, the ARC is the amount the
employer would be required to contribute in order to fund adequately
the accrued liability over thirty years.

Year ARC (000s) Actual County Contribution (000s) % of ARC 2005
$22,582 $16,484 73 2006 $26,636 $17,579 66 2007 $26,549
$18,318 69 2008 $28,662 $18,630 65 2009 $62,952 $19,515
31 2010 $60,760 $20,050 33 2011 $59,490 $23,201 39
That’s not to say that the County is not putting in a bigger dollar
amount, quite the opposite as shown in the table. In 2005 the County
put in $16.4 million, or about three-quarters of the ARC amount of
$22.5 million. This past year, the County put in $23.2 million but
its ARC was much higher at $59.4 million, no doubt as a result of the
drop in asset value and the growth in liabilities. This resulted in
a contribution level of 39 percent, somewhat higher than the low
point of the period in 2009 when the County contributed just 31
percent of its ARC. Note that in the years covered in the audit the
County never fully contributed the ARC amount.

While the County’s pensions have been overshadowed by the status of
many other pension plans from the state level down to the local
level, there have been efforts to either get more money into the
System or reform it. For the last several years, most recently last
December, the Retirement Board has raised the percentage of salary a
County employee has to put toward pensions from 7 to 8 percent
effective at the start of this year. It is not yet known if another
increase will be coming for 2013.

Under state law, the County is required to match the employee
contribution level, so, in effect, a Board action to raise the
employee amount means the County has to put in more money as well.
At the meeting last December it was noted that the eventual target
was a 20 percent level with 10 percent from both the County and its

At the same time there is legislation in the General Assembly that
would amend the minimum length of service to qualify for pensions for
new County employees from 20 years to 25 years and would try to
prevent "spiking" by stretching out the period for which final
average salary is counted and eliminating overtime from final salary.
At present an employee counts the highest two years of the last four
years before retirement as final average salary, which encourages
those employees who can to work a lot of overtime to do so. The
legislation would change this to the highest four years of the last
eight. An actuarial analysis performed by the Public Employee
Retirement Commission projected that the costs of the Retirement
System would come down gradually if the changes were implemented.

Eric Montarti, Senior Policy Analyst

If you wish to support our efforts please consider becoming a donor
to the Allegheny Institute.The Allegheny Institute is a 501(c)(3)
non-profit organization and all contributions are tax
deductible.Please mail your contribution to:

The Allegheny Institute
305 Mt. Lebanon Boulevard
Suite 208
Pittsburgh, PA15234

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