Scranton’s required contribution to pension funds decreases by nearly $5.3 million

Oct. 30--Scranton's required contribution to its three pension funds will be $5.3 million less next year, mainly because of a court ruling that denied cost-of-living increases to retired police officers and firefighters.

A separate court ruling that halted double pension payments to 22 clerical union retirees also played a role in the reduction, the plans' actuary, Randee Sekol, recently told the composite pension board.

The elimination of the cost-of-living increases reduced the plans' liabilities by $56 million, while the double pension ruling shaved $1.8 million off liabilities.

Those reductions, coupled with a $7.5-million increase in assets, improved the financial health of the police, fire and nonuniform funds, meaning the city's required contribution, known as the minimum municipal obligation or MMO, is $13.5 million for 2018, compared to $18.8 million this year.

Part of the MMO will be covered by state aid. For this year, the city will receive about $3.5 million, leaving $15.2 million to come from the general fund. City officials expect to receive the same amount next year, which would leave a balance of $10 million.

Sekol said the reduced liabilities are a key element that helped reduce the unfunded liabilities of the police, fire and nonuniform plans, which dropped from $157.2 million in 2015, to $105.6 million this year. That improved the plans funding ratio from 24.8 percent to 36 percent. The plans still remain severely financially distressed, which is defined as funding ratio of 50 percent or less.

While the reduction in the MMO means less money will come out of the city's general fund, it is not a "cause for celebration," city Business Manager David Bulzoni said.

The improvement comes at the expense of retired police officers and firefighters and certain nonuniform employees who saw their pensions slashed by 50 percent earlier this year.

The city stopped paying police and fire retirees cost-of-living increases as of 2014, because the pension funds are not financially sound. It also cut the pensions of nonuniform retirees who accepted a 2002 retirement incentive that doubled their pension after it learned increased benefits were not properly authorized.

The retirees challenged both decisions, but a Lackawanna County judge upheld the city in both cases this year.

Bulzoni said the city continues to work toward the ultimate goal of improving the funds' health so they are no longer distressed. To that end, city officials agreed to lower the assumed investment return on the funds from 8 percent to 7.5 percent.

Sekol has long advocated for the city to lower the rate from 8 percent because it is not realistic. The city resisted the suggestion, however, because it would cause its MMO to increase.

The savings achieved through elimination of the retirees' raises and double pensions made it feasible this year, Bulzoni said.

Contact the writer:

[email protected];

570-348-9137;

@tmbeseckerTT on Twitter

___

(c)2017 The Times-Tribune (Scranton, Pa.)

Visit The Times-Tribune (Scranton, Pa.) at thetimes-tribune.com

Distributed by Tribune Content Agency, LLC.