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W-B’s Aggregated Pension Fund Underfunded

August 17, 2018

WILKES-BARRE — Members of the city’s aggregated pension trust fund board want to find out why the fund is underfunded by more than $65 million. According to the most recent audit of the aggregated fund, which contains the assets of the city’s five employee pension funds, the city’s pension liability at the end of 2017 was $138.3 million, but the fund contained only $72.9 million — just over half the amount an actuary determined was needed for it to be fully funded. The city’s longtime actuary, The Hay Group, which was acquired by Korn Ferry in 2016, determines the amount of money that the fund should contain to guarantee that retirees receive full pensions over their lifetimes (the fund’s liability) and the minimum amount the city should contribute annually (the minimum municipal obligation, or MMO). In addition to city contributions, which come from taxpayers, the fund receives revenue from current employees who contribute 5 percent of their salaries, and from investment earnings. During a board meeting on Wednesday, board member and retired city police officer Ben Victor made a motion to advertise for bids for an actuarial study. “I think our pension funds are losing money … under the actuarial report,” Victor said. The fund’s value dropped from $84.1 million in 2009 to $68.5 million in 2017, while liability increased from $108 million to $153.7 million in that same time period, according to fund audits. City Controller Darren Snyder said one contributing factor could be the decrease in the number of employees on the payroll who contribute 5 percent of their salaries to the fund over that time period. Victor’s motion failed to get a second. But after some discussion, board members agreed they would like an explanation from the actuary and the opportunity to ask questions. The board voted unanimously to invite a representative from Korn Ferry to attend the next meeting. After the meeting, city Administrator Ted Wampole said there could be many reasons the fund is losing money. One of them, he said, is the payment of “excessive benefits,” which the administration is trying to eliminate from pension calculations. For example, a couple years ago, the administration sought to calculate pensions for some retired police officers using their base salaries rather than factoring in overtime, holiday, court and Act 120 certification pay. An arbitrator decided in favor of the police union in that case. The city appealed to Luzerne County Court of Common Pleas and had the decision reversed, but the union appealed to Commonwealth Court and had the county decision overturned. “We have to find a way to get some of the excessive pension benefits under control,” Wampole said. During the meeting, Victor also asked how Act 47 status might affect the city’s MMO. Mayor Tony George applied to the state for financially distressed status under Act 47 in June. State officials conducted a hearing on the matter earlier this month, and a decision on acceptance into the program is expected by early September. City Controller Darren Snyder said that if the city is accepted into the program, a recovery coordinator could recommend implementing a commuter tax on non-resident payroll earnings. The additional revenue earned from such a tax would be applied to the city’s contributions to the pension funds, Snyder said, but he wasn’t sure if the additional revenue would be applied in addition to the city’s MMO or if it could be used to help the city meet its MMO. The board also heard a report on the fund’s investment performance from Alex Goldsmith, senior management consultant with Public Financial Management Asset Management. Goldsmith said the firm intended to sell off about $16 million in combined investments with Berkshire Large Cap Core and Mellon Large Cap Equity, which he said have been under-performing, to invest the money in the Mellon Russell 3000 Index and iShares Small Cap ETF. Contact the writer: smocarsky@citizensvoice.com 570-821-2110, @MocarskyCV City of Wilkes-Barre Aggregated Pension Fund Status Year* Liability Value Unfunded % Funded 2009 $108.0 million $84.1 million $23.9 million 77.9% 2011 $115.4 million $83.7 million $31.7 million 72.5% 2013 $121.0 million $83.2 million $37.7 million 68.8% 2015 $164.7 million $73.1 million $91.7 million 44.4% 2017 $153.7 million $68.5 million $85.3 million 44.5% 2018 $138.3 million $72.9 million $65.4 million 52.7% * As of Jan. 1 that year Source: City of Wilkes-Barre and Pa. Auditor General website

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