WASHINGTON - The $2.5 billion District of Columbia Retirement Board is liquidating assets to pay benefits because the municipality is delaying its contributions to the pension fund.
On March 31, the fund will liquidate $25 million of a $500 million passive equity portfolio run by Alliance Capital Management L.P. Fund officials will decide each month which portfolio will be the most cost effective to liquidate, said James A. Tydings, chairman of the retirement board.
Usually, the board keeps about $50 million in a short-term fund to pay benefits and administration costs, which run about $25 million per month, Mr. Tydings said. The assets were exhausted for payments in January and February.
(The board already had decided to try to enhance returns by increasing active management and decreasing passive. In addition to the $25 million to pay benefits, the board will take $75 million from Alliance and redistribute it to two new managers. Provident Capital Management, Philadelphia, will run a small-capitalization value portfolio, and Phoenix Investment Management Co., Providence, R.I., will manage a large-capitalization growth portfolio.)
The liquidation is necessary because Mayor Sharon Pratt Kelly is stalling payment of about $230 million in contributions to the pension fund.
"I chose ... to delay pension payments instead of further burdening our residents," Ms. Kelly said in a letter to District of Columbia Council Chairman David Clarke.
Ms. Kelly needs the council to approve interim emergency budget legislation to amend the federal law governing the pension system. But the pension fund filed suit against Ms. Kelly in District of Columbia Superior Court to block the proposal.
The retirement board contends that if Ms. Kelly's proposal is approved, the board will lose about $32 million in investment earnings and will be charged about $700,000 in transaction fees.
"They've got this idea that the pension money is city money," said Mr. Tydings. "They don't understand the definition of a trust fund. We are not here to solve their financial difficulties."
Last year, the mayor and the district agreed to pay the fund $307.2 million in quarterly installments, for fiscal year 1994. The first quarterly installment of $76.6 million was paid in November but no January payment was made. The other payments are due in April and July.
Ms. Kelly, up for re-election this year, has asked the district council to wipe out the scheduled quarterly payments and pay the fund $144.5 million by Oct. 25, or 10 days after receiving its annual federal payment. The council is scheduled to vote on the proposal, which is in the fiscal 1995 budget, on March 22.
Delaying payment to the pension fund will not affect anyone receiving benefit payments and will help the financial condition of the city, Ms. Kelly said.
Currently, the pension fund is operating with a $5 billion underfunded liability, records show.
But Mr. Clarke said the 13-member council - which has seven members, including Mr. Clarke, up for re-election this year - would try to reduce the budget before it agreed to delay contributions to the pension fund.
The payment proposal was presented by Ms. Kelly as part of her budget plan for fiscal year 1995, which begins Oct. 1, 1994.
The mayor said the proposal would help patch a $308 million budget shortfall. Pension contributions will be paid back with 7.5% interest.
The remainder of what is owed, including interest, would be paid in three installments of $30.9 million each in fiscal year 1995. The district also would be required to make its fiscal 1995 contribution of $295 million.
"If they can't pay the balance now, how can they pay us more the following year?" Mr. Tydings said.
District of Columbia Chief Financial Officer Ellen O'Connor said the district will be able to make the fiscal 1994 payments during the next fiscal year by using proceeds from $150 million in budget cuts and a $110 million revenue proposal to raise taxes.
"With these taxes in place, we will have the reserves to make the payments," Ms. O'Connor said.
Ms. Kelly's proposal may jeopardize Congress' annual payment, Mr. Tydings said.
Congress enacted the 1979 Retirement Reform Act to create the D.C. pension board, and divided the funding responsibility between itself and the City Council until the year 2004. For fiscal year 1994, Congress agreed to pay the fund its regular payment of $52.1 million.
But Rep. Thomas Bliley Jr., R-Va., ranking Republican member for the House Committee on the District of Columbia, said Congress need not pay its bill to the pension fund if City Council defers its payments.
"The district will not be able to handle the deferral any better in 1996, 1997 or 1998, and in fact, may be worse off," Rep. Bliley said in a letter to Ms. Kelly. "The district cannot renege on its commitments and expect congressional approval."
In the meanwhile, the retirement board is "scraping" to put together monthly pension payments to beneficiaries, Mr. Tydings said.
Currently, the board is waiting for hearings to be scheduled on its suit against Ms. Kelly and the district.
In addition, the board is waiting for Rep. Eleanor Holmes Norton, D-D.C., to finish her study on how to fix the board's $5 billion underfunded liability.
