What Can Get Counted as Public Pension Assets

Somebody sent me a link re: Chester, Pa’s receivership/bankruptcy… and in particular, their police/fire pension that was supposedly 49% funded… but is really 3% funded (really pay-as-it-goes… and it went)

Here is the short version:

  • Since 2013, Chester has not been able to make full contributions
  • However, the unpaid portion has been booked as an asset in receivables, and was used to determine the funded ratio, last measured at 49% when those receivables are included
  • Chester is now in receivership/bankruptcy, and those receivables will never be received, so when marked at 0, the funded ratio is 3%

Here is a presentation from May 2021 explaining said thing:

Long version:

On slide numbered 1 (page 2 of the pdf):

In 2021, the City will spend approximately $14.6 million or 27.8% of its entire General Fund budget on pension and retiree health care costs

Slide number 2:

Every year, the actuary calculates how much the City legally needs to contribute to the plans which is called the Minimum Municipal Obligation or “MMO"

Slide number 3:

Due to the number of retirees and its relative financial weakness, the police pension plan comprises approximately $8.5 million or 85% of the City’s 2021 MMO.

 The City has not been able to afford making its full MMO payment since 2013. As a result, the City is incurring penalties and interest costs on these missed payments and its police pension plan is dangerously close to running out of money to pay benefits.

Slide 6:


Slide 7:

 However, the problem is even worse than what appears in the 1/1/2019 valuations because those calculations treat the MMO contributions that the City did not make in prior years and still owes as if that money was already in the plan because they are “receivables” due to the plan.

In the above table, the police pension plan appears to have $27,992,535 in assets as of 1/1/2019 with a funding percentage of 33.6%. However, almost all of those assets are “receivables.” Excluding the receivables, as of 12/31/2019, the police pension plan’s funding percentage was closer to 3%.

So… how legit was the above?

I don’t know how accounting rules may differ for public entities, but I would think in general those receivables should have been categorized as uncollectible/bad debt. Doesn’t make sense to include a receivable as an asset that isn’t expected to be collected.

Sure, I agree with that, but GASB rules are not necessarily the same as STAT and GAAP.

additional links:

The reason I’m asking is that I’m going to post about this, and I want to gauge how unusual this behavior is.

I know that under-contributing is not at all unusual.

I just didn’t think that it was usual to have “receivables” on the balance sheet as an asset for funding ratio calculations.

Don’t know why any public entity would ever choose to report their pension as “underfunded” if they could just include an IOU in the receivables on the balance sheet and not make the contribution

No, that wouldn’t actually work, because many plans make 100% contributions and their funded status erodes:


Simply making required/full contributions wouldn’t make the plans whole. In this case, it would have been only 49% funded.

So, an actuary calculated the MMO. Was that actuary also responsible for reporting on the assets and funding percentage, or does someone else get the blame for that, and the actuary’s hands are clean?

Here are the valuation reports for the three pension plans:

You will see these are short, and have a comparison of with/without those receivables on the first pages.

I will have to go searching to find the older documents, if easily available if at all.

Given Chester is a town of only 33K, this bankruptcy is not going to be the grand affair Detroit’s was. We may not be able to get at documents as easily or see the shenanigans as directly.

It would be nice to know why this was ever done and, more importantly, are there any other towns in Pennsylvania doing this right now, and get that stopped.

Interesting that the report says that Act 205 requires them to include the value of past (not made) contributions in the assets. That suggests this may be going on in plans throughout PA.

Here’s the act 1984 Act 205 - PA General Assembly

I did a quick search and was unable to identify where this is required. But I did find this in 301(d), which seems to state missed contributions should be accumulated with interest and added to future contribution requirements, not to the assets.

(d) Payment of minimum municipal obligation.–Annually the municipality shall provide for the full amount of the minimum obligation of the municipality in the budget of the municipality. The minimum obligation of the municipality shall be payable to the pension plan from the revenue of the municipality. Payment of the minimum obligation of the municipality shall be made by the municipality prior to December 31. ((d) amended Dec. 18, 1990, P.L.753, No.189)

(e) Interest penalty on omitted municipal contributions.–Any amount of the minimum obligation of the municipality which remains unpaid as of December 31 of the year in which the minimum obligation is due shall be added to the minimum obligation of the municipality for the following year, with interest from January 1 of the year in which the minimum obligation was first due until the date the payment is paid at a rate equal to the interest assumption used for the actuarial valuation report or the discount rate applicable to treasury bills issued by the Department of Treasury of the United States with a six-month maturity as of the last business day in December of the plan year in which the obligation was due, whichever is greater, expressed as a monthly rate and compounded monthly.

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Maybe somebody should tell them this is a bad idea.