Fund managers predicted that the employee pension investments in Pittsburgh will remain flat again in 2016. The value of its portfolio has been flat since 2004.
The city pays the retirees each year through the investment earnings. Despite having committed more than $1 billion over 12 years, the pension remained heavily underfunded. The city still owes the future and current retires $1.2 billion. Presently, it only has 56% of cash value in retirement accounts. It dropped from last year's 57%.
With cash contributions totaling to about $75 million for 2016, City Finance Director Paul Leger predicted that market investments earning 5.3% for the 12 months ending September would not be enough to cover the difference.
"My concern is how much money can we continue to shovel into a pension fund at the taxpayers' expense without getting that money then from the taxpayers," Leger said.
"That's the balance that has to be hit."
Members of Pittsburgh's Comprehensive Municipal Trust Fund considered dropping the rate of return they assume investments will earn each year, resulting to the city pumping more money into pensions.
Under state laws, municipalities may project investment earnings. By setting a higher rate, municipalities lower the amount Pennsylvania requires them to put into pension funds.
By lowering the rate of return from 7.5% to 7%, it would cost the city about $8 million extra each year. If lowered to 7.25%, it would cost about $4 million.
"We're not seeing those steady returns even at 7.5 percent," stated Ralph Sicuro, a pension board member and president of International Association of Firefighters Local 1.
"Why would we not consider rolling it back now? At some point, that's going to catch up with us," he added.
Another board member, City Controller Michael Lamb, has been advocating on lowering the percentage. He noted that pension payments budgeted for 2017 would exceed by $21 million the minimum contribution requirement of $49 million.
"In some ways, the reduction is meaningless because we're already doing what the reduction would get us," he said.
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