MERCER, LAWRENCE Counties raise taxes for pensions

Officials are looking at yearly contributions to keep pensions solvent.
By HAROLD GWINand LAURE CIOFFI
VINDICATOR PENNSYLVANIA STAFF
Three years of poor stock market performances by employee pension fund investments have forced Mercer and Lawrence counties to raise property taxes to supplement their pension plans.
For the first time in years, both counties had to make direct contributions to their pension funds in 2003, and they expect those numbers to be higher for 2004.
That money has to come out of the general fund, resulting in tax increases.
Mercer County raised taxes 1.5 mills for 2004 with $800,000 of that earmarked for an anticipated pension-fund contribution. One mill of real estate tax raises $1 million.
One mill generates $2.8 million in Lawrence County, and commissioners there have reopened their 2004 budget, proposing a 0.99-mill increase that includes $372,000 in a pension-fund contribution.
Both counties have substantial amounts of their pension money invested in stocks, and a booming market kept their funds growing for years.
Lost money
The stock market declines that began in 2000 and continued through 2002, however, resulted in the pension funds' losing money.
Mercer and Lawrence counties both had more than one-third of pension funds in stocks.
The retirement programs are funded primarily by employees who contribute 8 percent of their pay to the plans.
Mercer County hasn't been required to make a direct contribution in at least a dozen years but did make a voluntary $100,000 contribution in 1995.
Lawrence County made its last direct contribution in the 1980s. The county contributed $258,000 in 1983 and $273,000 in 1986.
Stock market losses resulted in the Mercer fund's dropping from a market value of $37 million in 1999 to just $28.2 million in 2002.
It has since begun a significant recovery and now stands at about $34 million.
Told to contribute
The Hay Group Inc., the actuarial company that oversees both counties' funds, told Mercer in early 2003 that it needed to make a $79,000 direct contribution for that year to keep its fund sound.
Being actuarially sound means having enough money in the fund to pay all the pensions of current retirees and active workers.
As 2003 drew to a close, however, the actuary raised that contribution amount to $402,035 for Mercer.
"It was tight," said Tom Amundsen, Mercer County controller and secretary of the county pension board.
Mercer was fortunate to have funds left over from its jail operations and some personnel savings that it used to cover the unanticipated increase, he said.
For end of year
The county has been advised that a contribution of about $800,000 will be needed at the end of this year and has budgeted accordingly, he said.
"It's hard to predict the future. We're hoping that it is not a trend," said Brian Beader, chairman of the board of Mercer County commissioners. "The county is obligated to keep it funded."
It's a problem that is affecting counties all across the state, Beader said, noting his solution would be for the county to make annual contributions of $100,000 or so, even in good times, so it won't be hit with sudden large future contributions.
"The [pension] plan is very healthy," said Mercer Commissioner Olivia Lazor, noting it had an estimated 20 percent return on investments in 2003, and, based on current predictions, could see another 20 percent return this year.
The actuary, which wants to see an annual growth rate of 7.5 percent, does a five-year average on the funds to determine what is needed to keep them fully funded, Amundsen said.
With several bad years now part of that average, Mercer County could face a demand for an even larger contribution for the next two or three years, Lazor said.
"That's dramatic when you haven't had to pay anything," she said.
Other factors
Amundsen said there are other factors that figured into the need for a county contribution.
The number of retirees is growing but the number of employees making new contributions to the fund isn't, he said.
Mercer has had an active work force of about 350 over the past several years, but the number of retirees rose from 200 in 1998 to 258 in 2002 and reached 290 in 2003, Amundsen said.
Mercer County also offered some early-retirement incentives two years ago and is making annual contributions of $157,909 for five years, beginning last year, to cover those costs.
Employee salaries, a factor in figuring pensions, also continue to rise, creating a further drain on the fund, Amundsen said.
Employees can now also retire earlier, he said, noting that the state changed the vesting period from eight to just five years at the end of 2003, putting further demands on the pension funds.
Three successive years of negative stock market returns out of many good years of stock market returns hasn't prompted Mercer County to make any changes in its long-term investment plan, said Robert Jazwinski, of JFS Wealth Advisors, Mercer County's pension adviser.
Lawrence County
In Lawrence County, commissioners initially expected to pay $620,000 this year to keep the pension fund solvent.
Controller Maryann Reiter, however, discovered that some grant-funded departments, such as Mental Health Mental Retardation, could increase their contributions to the fund. That means the county will only have to contribute $372,000.
But even with the increased contributions, taxpayers must still foot part of the bill.
"The amount we are contributing to the pension fund directly reflects the tax increase," said Commissioner Ed Fosnaught.
The pension fund, as well as costs accrued from the closing of Hill View Manor, the county nursing home, are the reasons for the tax increase.
Reiter said the ailing stock market, as well as an early- retirement incentive offered two years ago by the county, are other reasons the county must now put money into the pension fund. The number of retirees also increased from 169 in 2001 to 195 the following year.
"Prior to offering early retirement in 2001, the county was 100 percent funded. The early retirement cost us a large chunk of money, and then the stock market took a nose dive," she said.
More contributions?
Reiter said it's unclear if Lawrence County will have to contribute more money to the pension fund next year. Closing the county nursing home and taking those 120 employees out of the mix could make the fund solvent again, she said.
But in recent years, contributions by the workers haven't even been enough to cover the monthly pay out to retirees, she said. Lawrence County is taking an average of $40,000 a month out of its investments to pay its retirees, she said.
The county's most recent low point came in 2003 when the fund dipped to $31.4 million. It had been at $34 million the previous year. Earlier this year, the fund's manager said it was at $33.8 million.
County officials say there is no easy solution.
Commissioner Steve Craig said he would like the county to make yearly contributions of $20,000 to $30,000 to keep the fund solvent.
"If we had made these contributions over the last 10 years, we wouldn't have a tax increase this year," Craig said.
Commissioner Dan Vogler said he'd also be open to the idea of having a yearly pension contribution of $20,000 to $30,000.