Pittsburgh Faces Billions in Unfunded Retiree Benefits

The Allegheny Institute has released a report on the mounting costs of OPEB or the public sector retiree benefits for Pittsburgh and Allegheny County employees.

Previously retiree benefit expenses were recorded as they were paid, but recent accounting changes require benefits to be reported as they are earned. The change effectively exposes a ticking time bomb amounting to $1.98 billion in unfunded liabilities (not including worker’s compensation). And none of the plans have set aside assets to meet their obligations. The Port Authority shoulders the burden of the expenses with $690 million in long-term obligations, this despite recent cutbacks like ending retiree health care benefits for police and fire fighters hired after June of 2004.

The report's recommendations include curtailing/phasing out benefits, selling assets, maintaining the right to compare benefit providers, outsourcing, employment reductions, and pre-funding OPEB all in an effort to avoid tax hikes. More specifically, requiring an annual contribution from employees and premium increases after retirement could go a long way in funding the massive benefit obligations. The study also points out mandates requiring binding arbitration in contract disputes are partially responsible for the current financial situation.

The City of Pittsburgh wouldn’t be the first government to slash benefits, the state took similar actions last spring. Unlike the state, however, local governments have learned that extensive borrowing does not solve long-term debt issues. The report points to Pittsburgh’s attempt to fund pension liabilities by issuing pension bonds, which resulted in additional debt obligations. Promising benefits without providing a way to pay for them is detrimental to every taxpayer, sooner or later (and it’s often later) governments have to face reality.