Pension payments to jump by $680K

POTTSTOWN >> The minimum payments the borough must make to its police non-uniform pension funds is going up again.

Taken together, the increased burden on taxpayers will be $678,275 in 2020.

The increase comes on top of a pension hike of $1.1 million that was revealed last year.

Borough Manager Justin Keller said the increase for police pensions is $263,055, bringing the borough’s total annual payment to $1,784,671.

The increase for the non-uniform pension funds is higher, $415,220, although the total payment of $1,320,150 is lower.

Keller said there are two primary causes for the increase.

The first and less significant was an increase in the “mortality tables,” which is what actuaries use to predict how long a pensioner will live. The new tables are built specifically for municipal employees.

The bigger impact all had to do with timing.

Although Keller said the two pension funds, which are invested in a variety of stocks, bonds and other funds, “have done well on the investor front,” the Dec. 31, 2018 date when the state took the “snapshot” of how those funds were doing was a date that the stock market “was at an all-time low.”

So although the funds look much better than they did on the “snapshot” date, that’s the one that counts.

As a result, taxpayers will have to pony up the extra money to satisfy what the actuaries say the fund needs to meet its obligations.

Borough council is currently in negotiations with both the police and non-uniform unions for new contracts.

According to the agenda for Monday’s council meeting, a proposed new contract with the nonuniform workers would move all new workers hired after 2020 from a traditional defined benefit plan, to a 401-K-style “defined contribution plan.”

The difference is a defined benefit plan outlines the benefit, no mater how well the fund’s investments are doing, resulting in “minimum municipal obligations like the ones outlined Wednesday by Keller, to ensure the promised benefits can be met.

By contrast, a defined contribution plan guarantees only the amount the municipality will deposit in the retirement account. The amount ultimately paid out during retirement depends on how well the fund is doing in the market.

In May, a consultant’s report on future financial challenges for the borough identified pensions and retiree health costs as being among the largest drivers of rising taxes.

“Expenses have increased at an average annual rate of 0.4 percent, and a total of 1 percent from 2014 to 2018. Rising personnel costs have accounted for the majority of expense growth, including significant increases in the pension minimum municipal obligation (MMO),” wrote the authors.

Unfunded pension liabilities for both the police and non-uniformed pension plans had risen to $11.1 million by 2017, according to the report.

“The Police (Collective Bargaining Agreement) has rich healthcare benefits for retired employees,” the report found.

“From 2014 to 2018, retiree benefit expenses have increased by 46 percent. Retiree benefits are predominately comprised of retiree health insurance costs,” the authors wrote. “The benefits awarded to future retirees are anticipated to closely track the rate of growth of the majority of personnel expenses at 2.3 percent.”

As of Dec. 31, 2017, the liability for police retiree health care was $28.9 million with an annual required contribution of $2.3 million, according to the report.

“As the overall millage rate has continued to rise, the general fund portion of total millage has increased from approximately 56 percent in 2003 to over 70 percent in 2019, indicating that the general fund portion is driving the majority of the millage rate increase,” wrote the report’s authors.

“The 2019 total millage rate of 12.675 mills is the second highest municipal millage rate in Montgomery County. When also accounting for school millage, Pottstown residents still pay the second highest property taxes in Montgomery County,” they wrote.

Only Norristown’s tax millage is higher than Pottstown’s.

“Rising personnel costs have accounted for the majority of expense growth, including significant increases in the pension minimum municipal obligation (MMO).” — Econsult Solutions Inc. and McNees, Wallace & Nurick LLC, May 13, 2019

“The Police (Collective Bargaining Agreement) has rich healthcare benefits for retired employees. From 2014 to 2018, retiree benefit expenses have increased by 46 percent.” — Econsult Solutions Inc. and McNees, Wallace & Nurick LLC, May 13, 2019