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The majority of municipal pension plans in Luzerne County are in better shape than two years ago, but many communities still face challenges in ensuring they can meet financial obligations owed to current and future retirees, according to a recently released state report.


The report by the Public Employee Retirement Commission shows 22 of the 55 municipalities and other government entities reviewed had pension plans that are in a distressed financial state. That's down from 28 communities that had distressed plans in 2010.


While that's good news, the data shows many communities suffered setbacks that caused the overall financial health of their plans to decline. Of the 55 plans, 26 saw a decline in the plan's overall value.


PERC evaluates defined-benefit pension plans based on their funding ratio, which measures the percentage of liabilities covered by a plan's assets. The more the liabilities exceed assets, the lower a plan's funding ratio.


The funding ratio plays a key role in determining how much taxpayer money – known as the minimal municipal obligation -- a municipality must put into the fund to ensure it remains stable. The worse a plan's condition, the more money that must be paid in.


Plans with funding ratios of 90 or higher are considered not distressed; ratios between 70 and 89 are minimally distressed; ratios of 50 to 69 are moderately distressed while a ratio below 50 is severely distressed.


In Luzerne County, nine communities on the distressed list in 2010 bettered their bottom lines to the point they are no longer distressed: Edwardsville and West Wyoming boroughs and the townships of Bear Creek, Butler, Hazle, Hunlock, Newport, Sugarloaf and Union. In addition, Rice Township improved its status from being moderately to minimally distressed.


West Wyoming had the biggest turnaround. In 2010, the plan had a deficit of $265,049. That was turned into a $29,479 surplus in 2012 – a more than $235,000 change to the good. That bumped the plan's funding ratio from 73 to 104.


The news wasn't good everywhere, however.


Hazleton city's pension plan is in the worst condition of all county municipalities. It fell from being moderately distressed in 2010 to severely distressed in 2012 – the only municipality in the county to receive the lowest rating.


Four other towns saw their statuses decline: West Pittston, Nanticoke and Hughestown were not distressed in 2010, but are in 2012. Ross Township fell from a minimally distressed to moderately distressed.


The Hughestown pension plan saw the most significant drop in funding ratio of all plans in the county, decreasing from 102 to 84.


Many variables at work

Why did some plans perform so much better than others?


It's difficult to pinpoint exact reasons, as many variables determine a plan's health. Data from PERC indicates that many of the plans that improved saw an increase in assets that was fueled, in part, by an upswing in investment returns.


All but eight of the 55 communities saw their assets increase. Hazle Township reported the biggest percentage increase in assets, from $123,023 to $217,344 – a 76.6 percent increase. Rice Township had the second largest percentage increase, from $428,988 to $680,737, or 58.6 percent.


Other communities benefited from a decrease in liabilities. Twelve of the 55 communities saw liabilities drop. Lake Township reported the biggest percentage change, dropping from $422,391 to $203,161, a 52 percent decrease. It was followed by Harveys Lake, which reduced liabilities by 25.5 percent; West Wyoming, 24.7 percent and Freeland, 16.5 percent. For some municipalities the increase in assets was wiped out by higher liabilities. That was true for four of the five municipalities that dropped into a distressed status in 2012.


Hazleton, for instance, saw its assets increase by $1.5 million, but the gain was dwarfed by liabilities that surged by $5.9 million. That caused the plan's deficit to swell from $23.9 million to $28.4 million.


Wilkes-Barre city's pension plan, which is minimally distressed, also fared poorly, though not enough to change its distress level status.


Wilkes-Barre was one of the eight communities that saw assets decrease, from $84.1 million to $83.7 million. In addition, liabilities rose from $108 million to $115.4 million. That caused the deficit to increase from $23.9 million to $31.7 million, a 33 percent jump, dropping its funding ratio from 78 to 73.


Although the decrease did not change the plan's distressed status, it's still a cause for concern, said Bernard Kozlowski, deputy director of programs for PERC.


"If you keep dropping year to year, is your plan for administration appropriate and correct?" Kozlowski said. "It's five points right now, if two years from now you drop another five, you're headed in the wrong direction."


Factors change numbers

Municipal officials offered a variety of explanations why their pension plans fared better or worse over the two-year period.


In West Wyoming, council President Eileen Cipriani said the positive turnaround was tied primarily to the overall increased financial health of the borough.


In the past several years, the borough was plagued by financial problems that left it unable to pay its required allotment into the pension.


"We owed the pension close to $150,000," Cipriani said.


The borough entered the early intervention program with the Pennsylvania Economy League, which allowed it to regain a sound financial footing. That allowed it to catch up on the back money it owed to the plan, she said.


"We had so many issues administratively with the pension plan. They helped us straighten it out and make correct decisions," she said.


Officials in communities that saw their distress level rise cited various issues, including poor investment choices, generous benefit packages and an imbalance between the number of people paying in versus receiving benefits.


In Wilkes-Barre, which has five separate pension plans, city administrator Marie McCormick said one of the major issues is that in some plans, the number of retirees receiving benefits significantly outweighs the number of current employees paying into it.


"We have one pension with 382 people collecting and 280 active employees paying into it," McCormick said. "Trying to fund the pension for all people is very difficult."


McCormick said investment returns plans were also lower than had been anticipated. Part of that problem was the pension boards meeting quarterly, which meant they sometimes missed out on opportunities to alter investment strategies.


"It's timing. Sometimes we did not pick up on fluctuation in the markets," she said. "What we did to improve that is we went to a financial manager and have an agreement for them to make changes as we go along so we aren't missing the ups and downs in the market."


The problems in Hazleton are more complex.


Mary Ellen Lieb, city administrator, said Hazleton's problems stem largely from a generous early-retirement benefit package that was offered to employees in the late 1990s that provided lifetime health benefits to the employee and their families.


Hazleton also pays the benefit costs from the pension plan, which has a major impact on liabilities. Other municipalities pay those costs from the general fund budget.


Hazleton has taken several steps to address the funding woes, including gaining court approval to dedicate 0.4 percent of earned income taxes to the pension plan, according to a corrective action plan submitted to PERC. It's also negotiating with employees to increase their contributions.


Hughestown was hurt by a significant increase in liabilities, which rose by $43,056, or 20 percent, between 2010 and 2012. Assets, meanwhile, increased by just $750, or 0.3 percent. That caused the plan's $3,451 surplus to turn into a $38,855 deficit in 2012.


The borough has been cited by the state Auditor General's Office for paying an unauthorized pension benefit to the widow of its former police chief, George DeLucia. It's not clear how much impact that had on the pension plan's health. That issue is expected to be addressed in the 2012 actuarial report, which has not yet been released.


Wayne Quick, council president, said he believes the primary issue was poor investment performance. He said council is currently "shopping around" for a new investment adviser to try to improve performance


"We were only getting a minimum amount of interest," Quick said. "We are looking into shopping around to get better rates."


In Nanticoke, Donna Wall, benefits and financial coordinator, said city officials anticipated the plan's funding ratio would drop in 2012 because it chose to spread large investment losses that occurred in 2008 over a five-year period.


Even though the plan dropped into distressed status, Wall said it is very stable.


"We're not overfunded, but overall our plans are in very good shape," she said.


Ross Township secretary Terry Davis said the township was hurt by poor performance of investments, which were in a fixed-rate fund at the time they were assessed by PERC. It has since changed financial managers in an attempt to get better returns.


Savino Bonita, borough manager for West Pittston, said the small decrease in assets was primarily the product of technical accounting change utilized by the plan's actuary.


Bonita said he believes the plan is in good shape considering the economy, noting its funding ratio is just under the threshold to be declared distressed.


Aiming too high a worry

The fact a pension plan is distressed does not mean it can't meet its obligations, but it's an indicator of issues that need to be addressed to ensure it remains viable, Kozlowski said.


Municipalities are required to deposit their minimal obligation to the plans, which comes from the general fund budget, by Dec. 31 each year. The amount that must be paid is determined by each municipality in conjunction with the actuary that evaluates the plans.


State law requires municipalities to meet the minimum obligation. If a municipality fails to make the deposit, it will be noted as a "finding" in the audit of the plan the state auditor general.


The retirement commission began rating plans in 2010 to help municipalities identify issues sooner so that corrective action could be taken before the problems worsen, Kozlowski said.


"We are making them take a look at their pension plans. Our main concern is they don't ignore these things," he said.


One issue that remains a concern is the investment rate of return municipalities are predicting.


Kozlowski said it's important those returns be realistic. It's tempting to predict a higher rate of return because that will lessen the amount of money the municipality has to contribute each year, but that will catch up some point.


"Nobody wants to put extra money in. The way to not put in money is to make the (investment return) assumptions high," Kozlowski said. "(But) if you don't make it, that means you'll be putting in more money in the long run."




The worse a plan's condition, the more money that must be paid in.




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