Below are a few facts on Town finances authored by Assistant Town Manager Rege Ebner
"How does the pension crisis that has been reported in the news affect the Town?"
Google “pension crisis in Pennsylvania” and you will find any number of articles regarding the state of the public pension system in Pennsylvania. The articles generally focus on the increasing costs to run the various plans and the distressed status of many of these plans. To put this issue in perspective with regard to the Town of McCandless, we offer the following description of the two pension plans offered by the Town:
Police Defined Benefit (“DB”) Pension Plan – in a DB plan, the employee is guaranteed a pension payment upon retirement, usually based on a percentage of the employee’s salary at the time of retirement. Pennsylvania Act 600 of 1956, The Municipal Police and Career Firefighter Pension Law, dictates the basic terms of the plan. It requires that police officers receive a defined benefit pension.
An actuarial report is prepared annually to determine the amount that must be contributed to the plan by the Town in that calendar year to keep it solvent. This amount is referred to as the Minimum Municipal Obligation (“MMO”). Factors that are weighed include market performance to date, projected market performance into the future, expenses incurred by the plan, anticipated retirement payments to be made based on both active and retired officers, and contributions to the plan. The Town is responsible for funding the MMO. Town police officers are required to contribute up to 5% of their base salary to the plan, based upon the actuarial analysis and MMO.
The Town receives financial assistance from the Commonwealth to help fund both Town retirement plans based on a rate per active employee. As an example, in 2016, the Town’s actuary determined that the MMO for the Police DB plan was $455,181. The Town contributed $400,886 that was received from the Commonwealth and $54,295 from the Town’s General Fund to fully fund the MMO. As of December 31, 2014, the Town’s Police DB Pension Plan was 99.9% funded, which is classified as “Not Distressed.” According to a report prepared by the Commonwealth of Pennsylvania Public Employee Retirement System in December of 2014, the Town is one of 808 municipalities in the Commonwealth (55.8% of total municipalities in the Commonwealth) to hold that distinction.
Municipal Employee Defined Contribution (“DC”) Pension Plan – typically in a DC plan, both the employer and employee make contributions to the plan. The plan value is determined by the contributions made and any increase or decrease based on market performance. There is no guaranteed monthly payment upon retirement. This plan is similar to a 401(k) in the private sector. The Town maintains a 401(a) DC plan through the International City and County Management Association Retirement Corporation (ICMA-RC) for non-uniformed employees. Every Town public works employee is required to participate by contributing 6% of base salary to the plan, with the Town matching that contribution. Every Town full-time administrative employee is required to contribute 5% of base salary, with the Town matching that contribution. Each employee thus has an individual plan balance that is fully vested to the employee after 10 years. An actuary study is not required, and the Town has no financial obligation other than to match the employee contribution. At retirement, the employee takes his/her plan balance with him/her.
"Does the Town have to borrow money to pay for the services provided?"
All operating costs and capital projects and improvements, including the Town's annual road paving program, as paid for entirely out of operating revenues and a fund balance that has been reserved specifically for that purpose. The Town has not incurred any debt since 1992.