A new analysis by the Pew Center on the States found an average pension funding level of 74% in fiscal 2009 and a shortfall of a combined $99 billion among 61 key U.S. cities.
Still, it is not necessary to be “too pessimistic,” David Draine, Washington-based Pew senior researcher, said in an interview. “Obviously, the recession is the big story (in the funding shortfall), but the point is not to look at that one-time loss. Ultimately, this is a solvable problem, but only if policymakers make some of the tough choices.”
The Pew study — the center's first focusing on cities —highlights a big difference in how cities fund their pension obligations. In the 35 cities that made at least 90% of annual recommended contributions to their retirement systems, funding levels dropped by only 4% by 2009, while plans making less than 90% of their contributions dipped an average of 9%.
Pew researchers were limited to 2009 for complete data on all 61 cities, which represent nearly half of all municipal employees in the U.S.
Based on two criteria — funding levels of at least 80% as of 2009 and annual contributions of at least 90% of the contribution — 16 cities “managed to avoid the worst (underfunding), and they did so by exercising fiscal discipline,” Barbara Rosewicz, Pew director of research and information, said during a conference call about the report.
Some even had pension surpluses at the end of their 2009 fiscal year, including the $4.2 billion City of Milwaukee Employes' Retirement System, which was 113% funded.
“We pay our bills on time, and we're good about making sure we have a balanced budget,” said Alderman Michael Murphy, who chairs the pension board's investment committee and the Common Council's finance committee. “We've had good returns, but the council has been very responsible about resisting the pressure (to increase benefits or reduce contributions). We've said no,” Mr. Murphy said in an interview.
For the $1.65 billion Denver Employees Retirement Plan, which was 87% funded in at the end of its 2009 fiscal year, it's about “always making” the annual recommended contribution, said Rich Harris, finance and compliance officer. “Pension plans have to do three things in order to remain sustainable: manage their assets; manage their liabilities; and collect their ARC. It's really as simple as that. Everybody manages their assets; it's the other two things that can get you in trouble,” said Mr. Harris, who concedes “it takes great discipline” to not promise more benefits or reduce contributions when there is a pension surplus.