Pittsburgh pension board members refused Thursday to consider lowering the fund's annual investment-earnings projection, saying the move would require increased cash contributions each year that the city could fund only on the backs of employees or with a tax increase.
City Controller Michael Lamb proposed a study to determine whether the projected annual rate of return, now 8 percent, should be lowered to 7 percent or 7.5 percent. Mr. Lamb said he believes 8 percent is unrealistic in current market conditions and means, in a sense, that the city is still underfunding the pension fund.
But four other board members -- Mayor Luke Ravenstahl, city council President Darlene Harris, public safety director Michael Huss and firefighters union president Joe King -- opposed a study.
A lower investment projection would increase the city's required annual cash payments to the fund, Mr. Ravenstahl said -- and leave him scrambling to find funds in a lean budget or asking taxpayers for more money. "To me, this is where this is going, and I'm not going to do it," Mr. Ravenstahl said, noting he has never advanced a property tax increase and doesn't plan to now.
Mr. Ravenstahl's office said a change from 8 percent to 7.5 percent could require the city to pay an additional $9.3 million annually to the fund, without making a significant difference in the funded liability.
In addition, Mr. Huss said further discussion of pension funding only leads some retirees to fear that they won't get their checks. Pension payments, he stressed, are not in jeopardy.
Mr. Lamb said he wasn't wedded to a reduction in the anticipated rate of return but believed a study was needed to determine whether one would be feasible and appropriate.
"I don't believe 8 percent is realistic for this kind of fund. But you're right, the other side is, can we afford to lower it?" Mr. Lamb said. Because of the opposition, he withdrew his proposal for a study.
The pension fund is funded with cash payments and investment earnings. To remain in compliance with state funding formulas, a change in the anticipated rate of return likely would increase the required cash contribution.
This year, the city is contributing $55 million, including about $13.4 million in parking tax money from a city council-led bailout in 2010 that averted a state takeover of the fund last year. Employees are contributing $10.8 million.
Because of the bailout, the city briefly covered 62 percent of fund liabilities, up from 29.3 percent before. Because of market performance, however, the funding level had fallen back to 57 percent by June 30. Meanwhile, the city's payments to retirees continue to outpace fund revenues, another of Mr. Lamb's concerns.
On Aug. 7, James McAneny, executive director of the state Public Employee Retirement Commission, told the city's state-appointed financial overseers an 8 percent investment-earnings projection was unrealistic. "Nobody carries 8 anymore," he said.
That statement brought criticism Thursday from Mr. Huss and Mr. King, who gave the pension board charts showing that many municipalities in Pennsylvania use 8 percent.
In a phone interview after the meeting, Mr. McAneny said 8 percent is not commonly used nationwide but is still used by some municipalities in Pennsylvania.
Mr. King said 8 percent is a realistic return over a long period, and Mr. Huss accused Mr. McAneny of telling overseers, who are often in conflict with the mayor, what they wanted to hear.
Joe Smydo: firstname.lastname@example.org or 412-263-1548.