Dec. 11, 2024
DISTRICT ATTORNEY ZAPPALA’S STATEMENT:
ALLEGHENY COUNTY UNFUNDED PENSION – A LOOMING CRISIS
At the outset, I wish to assure all current retirees of the Allegheny County Employees’ Retirement System that the actions I have taken will not affect their current payments and are intended to preserve their future payments. There is no immediate risk of nonpayment of retirement benefits.
BACKGROUND
Several months ago, a fiduciary of the Allegheny County Retirement Board (the “Board”) filed a complaint with my Office alleging a conspiracy to defraud the Allegheny County Employees’ Retirement System (“System”). An investigation of that matter is now ongoing.
As part of that matter, my Office commenced a review of the System’s finances and discovered that the Board’s actuary had determined that the System’s total liabilities exceeded the System’s assets by about $1.27 billion (the “Unfunded Actuarial Liability”); in effect, the plan is only 42% funded. The System is not actuarially sound, and the Unfunded Actuarial Liability will continue to increase due to negative cash flow and other conditions outlined in my complaint.
We also found that the Board’s actuary and the County’s independent public accountant had been warning the Board and the County since at least 2016 that the pension fund would be depleted (out of assets) in approximately 15 years. In response to those warnings, the Board raised the County employees’ mandatory pension contribution rate from 9% in 2016 to 11% in 2024, making it one of the highest in the nation. In addition, the Board entered into aggressive investments in an attempt to reach its lofty 7.75% assumed investment rate of return, which resulted in unsustainable volatility and significant losses.
PENSION PLAN CANNOT CONTINUE IN ITS CURRENT STATE
Today, a typical County employee must reach age 60 with 25 years of service to qualify for a County pension. The Board’s actuary now estimates that the average County employee is 46.4 years of age with 11.3 years of past service. Therefore, an average County employee, relying on the plan being actuarially sound, who continues to pay a substantial portion of their gross wages into the System over the next 14 years will face an insolvent System when they reach retirement, if nothing is done starting immediately. In short, this is why I have acted; the System cannot function like a Ponzi scheme.
LITIGATION
As the District Attorney of Allegheny County, I, along with a current County employee, have filed suit against the Board and Allegheny County in the Allegheny County Court of Common Pleas to protect the System’s active and retired employees. The suit requests, among other things, that the Court: (i) declare that the System is not actuarially sound; (ii) order the Defendants to develop a plan to bring the System into an actuarially sound condition of 100% funded status within a reasonable period of time; (iii) order Allegheny County to allocate sufficient funds to maintain the System in an actuarially sound condition of 100% funded status within a reasonable period of time as required by the Second Class County Code; (iv) enter a judgment against Allegheny County and the Board; and (v) restrain the Board and Allegheny County from their deceptive and unlawful administration of the System.
Allegheny County is facing one of the most serious unfunded pension crises in the history of the Commonwealth Pennsylvania. It is my hope that all parties will work together to ensure that the benefits earned by the System’s participants will be paid as promised.
The full complaint is available for view here: Allegheny County Pension Complaint