Radnor Commissioners Talk Unfunded Liabilities

At Tuesday night’s regular meeting of the Radnor Township Board of Commissioners, the board heard a series of presentation on the unfunded liabilities that the township’s original Five Year Plan skirted.

(Watch the meeting in its entirety in the video section of this article.)

“We don’t intend to walk out of here tonight with a concrete idea of what we’re going to do going forward,” said finance director Bill White, issuing a rather large caveat before the proceedings. “This didn’t all come about overnight, and it’s not something we can realistically sit here and fix overnight.”

According to White, the three areas where the township is on the hook for unfunded liabilities are:

• Pensions, for which it owes $12,318,800
• Other Post Employment Benefits (OPEB), for which it owes $54,491,372
• Compensated Absences, for which it owes 4,549,137

White emphasized the pension liability was amortized over 15 years and the OPEB over 30. He said that the problems this debt emerged from and will cause are not unique to Radnor. Nationally, unfunded liabilities at the state level amount to between $2 and $3 trillion and $500 to $600 billion at the local and municipal level.

A representative from Mauckenhaupyt Benefits Group—an actuarial and consulting firm that has worked with Radnor for 20 years—delivered a power point presentation on the township’s financial woes.

She said the 2008 stock market mini-crash had a devastating effect on Radnor’s, and many other municipalities’ pension accounts.

“The one glaring thing is the one year in the stock market that just killed us, and we’re still not back from that,” she said. “Despite a couple years of gains, it still doesn’t get us back…We assume eight percent [investment growth] per year. If you have a zero year that means to us that you lost eight percent.”

She added that the township’s pensions are defined benefit, which means the township is responsible for providing a set of services to pensioners rather than just a, usually less expensive, pre-determined sum of money.

While police pension plans, by state law, have to be defined benefit—though there are some efforts to repeal that statute—on non-police side, the township can negotiate for defined contribution plans for new employees, and may even be able to get out of the defined contribution deals it has in place for current employees.

And all tolled, she said the township is behind. When the next valuation of the township’s pension plan is delivered—and it will be reflective of township finances as of Jan. 11, 2011—she estimates the township will be classified as “Moderately Distressed” and more specifically be determined as capable of paying only 62 to 65 percent of its pension obligations.

Going forward, she recommended getting better investment returns; requiring more contributions from employees; curbing leave payments, comp time and overtime employees receive; and offering less robust benefits packages to new employees.

White went on to say that the township needs to more accurately account for what its revenues and expenditures are, vis-à-vis these liabilities. It hasn’t always done this. He showed, in a spread sheet, that Radnor has funded only 85 percent of its police pensions as of 2010—lower than Upper Merion, Lower Merion, and Tredyffrin—and only 66 percent of its civilian pensions—again, much lower than all three.

“It’s because our assumptions have gone off line with what’s happened,” White said.