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:
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.
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?