- Associated Press - Wednesday, February 26, 2014

HARRISBURG, Pa. (AP) - Rising pension costs for local government workers could push municipalities into bankruptcy and spur tax increases if policymakers do not make changes, Pennsylvania’s auditor general warned Wednesday.

Pennsylvania’s approximately 1,200 municipal pension systems are underfunded by billions of dollars, and their commitments are at risk if a Pennsylvania municipality follows the path of Detroit, Auditor General Eugene DePasquale’s report said.

In the report, DePasquale called for the municipal pension systems to switch new hires into 401(k)-style retirement plans and to make changes to try to lower pension obligations to future employees.

Those changes should include barring high amounts of an employee’s overtime pay from influencing pension obligations and adjusting age and service requirements for retirement eligibility to account for increased life expectancy.

He also said the plans’ administration should be consolidated and the state should increase aid to particularly troubled pension systems in municipalities that meet certain requirements, such as promising not to increase pension benefits.

“The burden of the underfunded and distressed municipal pension plans ultimately will be passed on to the taxpayers of each municipality with a distressed plan,” DePasquale said in the 14-page report. “Without immediate action by the governor and state Legislature, current recipients of pensions could be at risk of not realizing their lifetime pension payments, and current employees may never realize any return or a smaller return from their pensions.”

Most of the systems were funded at 90 percent or higher, based on 3-year-old valuations, but systems that are below that level were underfunded by $6.7 billion, with three-fourths of that attributable to Pittsburgh and Philadelphia, he said.

New requirements from the Governmental Accounting Standards Board - that municipalities and pension plans must include a net pension liability on their balance sheets - will make it more expensive for municipalities to borrow money and require increased pension contributions, DePasquale said.

That could divert more money from municipal services and trigger higher property taxes, he said.

“The presentation of the net pension liability will have a direct and immediate impact on the balance sheet of all municipalities,” the report said.



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