The city of Pittsburgh boasted one of the worst-funded municipal pension plans in the country last year at this time and faced a state takeover of the system unless officials could raise funding levels to at least 50 percent of liabilities. Instead, the state allowed Pittsburgh to employ a fiscal gimmick by pledging future parking meter revenues to the pension system but counting the value of those future revenues as if they were current assets in the system. Viola! Funding problem solved. Even with that gimmick alleviating pressure from the state, Pittsburgh's pension fund continued projecting an unrealistic 8 percent annual investment return despite pressure to lower it.
Now the city council has refused even to study the idea of reducing the rate at which the fund discounts future liabilities to 7.5 percent or even 7 percent because, of course, that would require the city to increase contributions into the system. A new report by the Allegheny Institute notes that even with the unrealistically high 8 percent discount rate (and last year's gimmick) the Pittsburgh system is only 57 percent funded. By the new standards that ratings agency Moody's is using to evaluate pension fund liabilities, namely a more realistic rate of return similar to what corporate bonds are currently achieving, Pittsburgh's system is less than 40 percent funded. As Allegheny points out, Pittsburgh officials aren't really solving their pension problems, just kicking the can once again down the road. The problem is so deep that the city probably can't dig out of it without wholesale reform that includes switching out of the current pension system and into a defined contribution system for those not vested in the current system, Allegheny argues.