State Launches Second Audit Into Pittsburgh’s Pension Funds
Pittsburgh’s pension funds continue to stumble and, for the second time in three years, Pennsylvania Attorney General Eugene DePasquale has launched an audit of the system.
DePasquale said Wednesday that he is not singling out Pittsburgh for additional audits.
“We think that this is one of the biggest financial challenges facing municipalities all over the state,” DePasquale said. “So we are really going to stay on top of this to make sure that cities are doing what they need to do to make sure (their pension programs) are financially in good shape.”
In 2011, the city’s pension funds were 62 percent funded, but that number has fallen to about 55 percent in the most recent calculation.
“Cities in the state are hiring fund managers, and they’re paying a lot of money to that,” DePasquale said. “But in some instances they’re not even beating the relatively low stock index funds.”
But the auditor has pushed for pension reforms since his time in the state legislature.
“I don’t have a lot of confidence that Harrisburg is going to address this comprehensively anytime soon,” he said. “That’s why I’m hopeful that after the audit we can give the city and the cops and firefighters and the non-uniform unions the ability to negotiate some changes on their own.”
DePasquale said he wants to see an end to the practice of “spiking,” where an employee puts in extra overtime hours at the end of their career in order to have their pensions based on a higher annual income.
At the same time, DePasquale said he will make sure the city gets the types of returns it needs on its investments to stay solvent. The city calculates its annual payments into the pension systems based on the assumption that the investments will earn at least 7.5 percent annually. In 2014, the funds returned 9.2 percent, but in 2015 they earned just 3.2 percent.
“That’s always cyclical,” Pittsburgh Mayor Bill Peduto said. “You’re always going to have ups and downs, but you want to look at it on a long-term basis.”
Peduto, who is also calling on the state to help reform and support the system, said the city leaders would like to explore nontraditional investment options.
“Can we look at ways that other cities have done to invest in neighborhood and small businesses and still be able to see the needed return on investment?” Peduto said.
Peduto said he would also like to see all new hires placed into 401(k)-type system rather than in the more traditional pension plans.
Such a move could reduce the long-term burden on the city but increase liability in the short term, her said.
The audit is expected to be finished by the spring of 2017.