Auditor General Eugene DePasquale said Tuesday that he is concerned about the results of a recent audit, which found an increase in unfunded liability and annual pension payments for Allentown’s Employee Pension Plans.
Allentown’s unfunded pension liability increased by approximately $27 million, the audit found, since the city infused $150 million cash into the pension plan from the proceeds of leasing the city’s water system in 2013.
“I urge Allentown leaders to keep their eyes on the ball and not become complacent,” DePasquale said. “Allentown officials took extraordinary measures to vastly improve the city’s severely distressed pension plans in 2013. It is important now to remain vigilant in protecting and preserving the health of the employee pension plans.”
The audit examined pension plans from Jan. 1, 2015, to Dec. 31, 2016, and did not include the impact of the 2017 investment returns. The audit found the funding levels of three of the four city employee pension plans had decreased since 2014. These declines were the first since 2013 when the cash infusion took place.
Before the infusion, the police and firefighter plans were severely distressed at 40.9 percent and 38.5 percent funded, respectively.
After the infusion, Allentown’s annual required pension contributions for all plans decreased from $13.3 million in 2012 to $5.6 million in 2014. Annual payments again rose to more than $9.5 million in 2016, an approximately $4 million spike in two years.
Allentown’s unfunded pension liability increased from $39.7 million in 2014 to $66.7 million in 2017, the audit found.
According to the audit, several factors contributed to the downturn, including pension benefits payments and expenditures that exceeded contributions; a reduction of the anticipated investment rates of return by the pension board; and more retirees from the city’s pension plans than active, contributing members.
The audit had two findings related to language in the plan that was not in compliance with Third Class City Code and two findings of overpayment of state aid because of incorrect data.
City officials said they plan to address the contract language and to reimburse the commonwealth $53,991, plus interest, for the overpayment of state aid. The auditor general’s office verified that the reimbursement, including interest, was made in February 2018.