Auditor General DePasquale Says Carbondale Granted Lifetime $10,000-a-Year Retirement Incentive Not Permitted Under State Law

HARRISBURG, Pennsylvania, April 25 -- Pennsylvania Auditor General Eugene DePasquale issued the following news release:

Auditor General Eugene DePasquale said today a retirement incentive given by the City of Carbondale in 2016 is not permitted under state law. The city granted a lifetime, $10,000-a-year early retirement incentive to a police officer in exchange for him opting out of city-funded health insurance benefits.

The Third Class City Code does not permit pension plans to be part of health insurance benefit buyouts, according to the auditor general's recently released audit which covered Jan. 1, 2015 to Dec. 31, 2016.

Carbondale officials also granted the retirement incentive without examining the long-term financial impact on the pension plan, as required by state law.

Since September 2016, the retired police officer received nearly $20,000 in benefits in excess of what is permitted by the Third Class City Code. Carbondale pays all taxes on the $10,000-a-year net benefit, raising incentive costs to $11,760 per year, or $980 a month in excessive benefits.

"Carbondale has made some creative attempts to cut costs through early retirement incentives," DePasquale said. "Whether you agree or disagree with the goal, these retirement incentives are not allowed by state law. The best recourse for the leaders in Carbondale is to stop the incentives and work with their legislators to address much-needed municipal pension reform."

The latest audit also found that Carbondale owes more than $16,500, plus interest, to the police and fire pension plans for failing to fully pay the minimum municipal obligation in 2015 and 2016.

DePasquale said he is concerned that Carbondale's unfunded pension liability more than doubled in two years while the funding levels in the police and fire pension plans dropped from levels of no distress to minimal distress.

The unfunded pension liability increased to more than $1.75 million from 2013 to 2015, including: the police and fire plan liability rising from $544,616 to $1.2 million and from $251,734 to $548,252, respectively.

Pension funding levels in the police plan dropped from 90.1 percent in 2013 to 81 percent in 2015; the fire plan fell from 92.5 percent to 86.2 percent. Plans are not considered distressed when they exceed 90 percent funded.

"My audit found that the pension debt increased while the funding levels dropped," DePasquale said. "Carbondale did not fully meet its required pension obligations and the city's pension plans are now showing signs of distress. It is important that city officials continue to monitor these areas of concern and work toward a long-term solution."

This is the second consecutive audit of the employee pension plans in Carbondale which found retirement incentives in excess of the Third Class City Code.

An audit released in 2014 questioned early retirement incentives which gave three officers an annual retirement benefit of 65 percent of their final pay, well above the state-allowed maximum of 50 percent. The city also paid a 50 percent disability pension to one officer when the state allows a 40 percent maximum.

As a result of the 2014 and 2016 audits, Carbondale reimbursed the police pension plan $129,363 for excessive benefits paid through December 2017.

The City of Carbondale Aggregate Pension Fund audit report is available online at: www.PaAuditor.gov.