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City Pension Board Keeps Assume Rate Of Return At 8%

The city of Pittsburgh Pension Board has opted not to seek a study of whether it should lower the projected rate of return on the pension fund's investments.  The city uses a rate of 8% but City Controller Michael Lamb, a member of the Pension Board, suggested a study to consider lowering the rate of return to 7.5% or even 7%.

Lamb's proposal came two weeks after James McAneny, executive director of the state Public Employee Retirement Commission told the Intergovernmental Cooperation Authority (ICA), the state panel overseeing the city's finances, that "nobody carries 8 [%] anymore."

However, several other cities in Pennsylvania including Philadelphia use the 8% rate and Joanna Doven, press secretary for the Ravenstahl administration added that many states do as well.  "Yes, some have lower rates of return.  If you lower your [projected] rate of return, you have to put more money [from the operating budget] into the pension fund every year," said Doven.  "The mayor is not going to raise taxes, and we're not going to taker money off the backs of city workers."

Controller Lamb calls the 8% return "unrealistic" and said other cities might be using that rate "but have they earned that return, and the answer to that question is 'no' they haven't," Lamb said.  None of them have had that kind of performance.  To suggest that all of a sudden the city can get that kind of performance, it's crazy."

Doven said reducing the rate to 7.5% would hurt the city's operating budget.  "[That] could mean an additional $10 million contribution per year.  Where's that going to come from?  We simply do not have the funds to take from police, fire, public safety, public works to put in the pension fund."

"That's completely false" responded Lamb.  "Based on this budget year, if we were at 7.5%, it would cost us nothing additional because year we're putting additional money into the fund."

In 2010 the city's pension obligations were only 28% funded and the state legislature forced the city to boost that above the 50% mark or risk a state takeover of the fund's managment.  The city is using revenues from increased parking rates to do so.  The contribution this year to the pension fund is $55 million.

Doven said if the return falls below 8% for a year, it is not a problem because the pension fund is based on a 30 year period.  "The market fluctuates every year.  This year it wasn't very good.  Next year it might be better.  But over a 30 year period, can we get an 8% rate of return?  Our independent pension analysts say 'yes.' "

But Lamb claims the city is ducking its responsibility to retirees and current workers and needs to make a commitment to the pension fund.  He admits part of the answer is the need to get concessions from employees and unions.

The city's $1 billion pension obligation is about 58% funded and according to Doven that is "manageable" because not all city employees are going to retire the same year.  "The pension fund is safe," said Doven. "There is no crisis."