Auditor General DePasquale Says Coatesville’s Police Pension Plan Hurt by Early Retirement Package that will Increase Future Costs
Auditor General DePasquale Says Coatesville’s Police Pension Plan Hurt by Early Retirement Package that will Increase Future Costs
Coatesville offered early retirement without calculating full impact on pension plan
HARRISBURG (May 19, 2015) – Auditor General Eugene DePasquale said today that an early retirement package offered in Coatesville without first conducting a mandatory cost study has contributed to the nearly tripling of the city’s annual pension contributions while helping to undermine the stability of its once fully funded police pension fund.
DePasquale’s office recently released audit reports for the Chester County city’s three municipal pension plans for police officers, firefighters and non-uniformed employees covering Jan. 1, 2012 to Dec. 31, 2013.
“The decision in 2012 to allow eight police officers to retire early without first conducting the mandatory study of potential cost is already having a negative impact on the pension fund and municipal finances,” DePasquale said. “I know that city officials are working hard to improve Coatesville’s economy with projects such as a new train station. Coatesville, along with municipalities at all levels across the state are struggling with pension issues. I want municipal officials to make smart decisions about their pension plans so that their economic initiatives can thrive.”
The audit notes that the early retirement package was not allowed under the Third Class City Code because it granted excessive benefits, including allowing police officers to retire with 15 years of service instead of 20 years and retire at 70 percent of their final average salary, instead of at 50 percent.
According to the Police Pension Plan audit report, the eight retirees received $570,871 in excessive benefits from May 2012 to February 2015. The excessive benefits also:
• helped cause the police pension plan to fall from 100 percent funded in January 2011 to the minimally distressed level of 79.1 percent funded in January 2013.
• contributed to Coatesville’s minimum annual municipal pension obligation (MMO) payment jumping from $271,871 in 2014 to $686,820 in 2015.
“These type of short-term decisions, made without knowing the long-term impact, are among the reasons why many municipalities across the state are struggling to fund their employee pension obligations,” DePasquale said.
Auditors had two findings in reviewing Coatesville’s Firefighters’ Pension Plan:
• failure to include service-related disability benefit provisions in the plan, and
• improperly amending the pension ordinance by resolution.
The firefighters’ pension plan dropped from the minimally distressed level of 76.2 percent funded in 2011 to moderately distressed level of 58.5 percent funded in 2013.
Auditors had two findings in reviewing Coatesville’s Retirement Income Pension Plan for non-uniformed employees; both issues related to prior audit findings:
• A city ordinance was not in compliance with the Third Class City Code and could have resulted in inconsistent or improper benefit calculations and incorrect benefit payments from the pension plan. City officials amended the ordinance on Oct. 27, 2014 to address benefit provisions for union employees. Compliance for non-union employees will be verified during the next audit of the plan.
• The city failed to determine vested pension benefits for seven employees in prior audit periods and three employees who ended employment during the current audit period. City officials agreed to resolve the issue.
The Retirement Income Pension Plan for non-uniformed employees remained at the minimally distressed level, but dropped from 87.9 percent funded in 2011 to 83.4 percent funded in 2013.
“When the economy is growing as it has been, it raises a red flag for me when I see a municipality with declining pension fund balances,” DePasquale said.
Earlier this year, Auditor General DePasquale released a statewide municipal pension report that puts the total unfunded liability for municipal pension plans across the state at $7.7 billion.
The report includes 13 recommendations that could be part of a comprehensive statewide effort to address the underfunding of municipal pension plans and the systemic issues associated with the administration of the plans. Last week, DePasquale was appointed to lead Governor Wolf’s Task Force on Municipal Pensions.
The audit reports for the City of Coatesville’s three municipal pension plans are available online at:
• Retirement Income Pension Plan (for non-uniformed employees)
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