Pittsburgh Post-Gazette
February 13, 2011

The city of Pittsburgh spends nearly $3 million a year managing its pension benefits and investing its retirement pool — a figure that has remained steady even as Mayor Luke Ravenstahl’s administration has pursued a slew of so-far-failed plans to plug a huge funding gap.

Some of the spending is outside the administration’s control, governed instead by panels of police and firefighters who have given veterans of their ranks well-paid posts administering retirement benefits.

Firefighters Local 1 President Joseph King, for instance, gets $37,192 a year to serve as secretary-treasurer of the Firemen’s Pension Fund, in addition to his $68,718 earnings as a master firefighter for the city, plus $7,500 for union work — a total of $113,410.

Mike Kroner, a retired city police sergeant and son of former Allegheny County Police superintendent Robert G. Kroner, collects a pension check and also earns $64,012 as the Police Retirement Fund secretary-treasurer, plus $2,300 for expenses.

Each man has two clerks and a rising budget. A separate Municipal Pension Fund has three employees, and there are three outside lawyers involved in pension work — which adds up to a problem, some officials said.

“The city’s [pension] situation is so serious that every effort to contain costs has to be looked at,” said city Controller Michael Lamb. “We’ve got to have more consolidation of those staffs.”

The city’s $3 million-a-year bill for pension administration is split between investment expenses that have averaged $1.8 million a year, and administration costs that have averaged $1.3 million.

“It sounds a little high,” said council President Darlene Harris.

The city’s pension funds contain “hundreds of millions of dollars,” said Mr. Kroner. “A million dollars [for administration] isn’t very much when you’re looking at numbers like that.”

Inadequate balance
The city’s pension fund late last year held less than one-third of the nearly $1 billion it should have to cover obligations to retirees and current employees. On Thursday, the city’s Comprehensive Municipal Pension Trust Fund board, which oversees city retirement investments, met but did not release a year-end balance for the fund, for fear that any figures released might be used to justify a state takeover of the city’s pensions.

A state law passed in 2009 requires that the fund hold at least half of the money it should, or come under state management. Mr. Ravenstahl had asked legislators to make changes to laws governing municipal retirements, including eliminating overtime from firefighter pension calculations and allowing defined contribution plans. Those reforms, though, were stripped from the bill and his subsequent plan to privatize parking assets and put proceeds into the pension fund was nixed by city council.

Council instead shifted $45 million in reserve money to the fund, and pledged about $735.7 million in parking tax revenue over 31 years in an effort to show the state that the fund was effectively more-than-half full. The state Public Employees Retirement Commission is expected to decide in September whether the city has reached the thresholds in the law, or must turn over pension fund management to the Pennsylvania Municipal Retirement System.

PMRS officials said last year that they could manage the city’s pensions with lower overhead, because of the economies of scale they get from running some 900 smaller municipal retirement programs. They raised the possibility, though, that they would open a local office and retain some of the city’s pension staff, potentially cutting into their cost advantage.

City finance director Scott Kunka said city auditors have long suggested a merger of some of the city’s pension offices. “I don’t know that you could have an executive fiat and make that happen,” he added.

A big staff
The nine employees and three outside lawyers involved in the city’s pension work constitute a staff that is triple the size of the staff of the Retirement Board of Allegheny County, which handles all administration for a larger number of workers.

City pension officials said their staffing is driven by the complex state laws governing firefighter, police and other city employees. Separate panels for each group of employees set their own budgets, with the money coming out of the pension fund.

Their staff members are paid commensurate with the workers they serve. The firefighter pension staff last year even got the same $700 clothing maintenance payment that the men and women riding the pumpers received.

Mr. King said his office is “the facilitator for everything that happens with the lifestyle of a firefighter, retiree or widow. … This is without a doubt a job, not only five days a week, but seven days a week.

“[When] we have a firefighter killed in the line of duty, you can’t imagine everything we have to do for them.”

The municipal and police boards have their own lawyers, each of whom typically makes around $20,000 a year, while the firefighters use the city solicitor.

The separate Comprehensive Board has no employees, but a solicitor, Frederick N. Frank, who billed $123,692 last year. Mr. Frank, who also does legal work for the Post-Gazette, was involved in exploring the proposed parking privatization and handling a merger of Wilkinsburg firefighters into the city retirement system, among other issues.

The county Retirement Board has one lawyer.

“I don’t know that we need four lawyers” on city pensions, said Mr. Lamb. “That doesn’t make a lot of sense to me.”

The city is in the process of replacing its $20,000-a-month pension investment adviser, Mercer Investment Consulting, but Mr. Kunka said he did not expect to shave much off of that cost. Nor did he think much could be shaved from the roughly $1.5 million a year the city pays investment fund managers.

“Our costs are not expensive,” he maintained, adding that the administration keeps looking for ways to reduce them.

It’s hard to tell whether the city spends more or less than average on its pension system. The Public Employee Retirement Commission gets annual reports including municipalities’ spending on pension administration, but PERC executive director James McAneny said they are hard to compare because different governments count costs differently.

Even in their annual audits, cities report their pension expenses in dramatically different ways, with some revealing little or no costs while Philadelphia documents $56 million in spending on its massive retirement system.

“Is there value in standardizing that kind of [reporting]? Certainly,” said Mr. Lamb. The bigger problem, though, is the existence of thousands of municipal pension funds, with staffs and solicitors, in Pennsylvania. “The first issue has got to be consolidation of some sort.”