Valley Joint Sewer Authority lowers expectations on pension plan

By C.J. Marshall (STAFF WRITER)
Published: March 11, 2010

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The Valley Joint Sewer Authority voted at its regular meeting Wednesday to lower the anticipated return on the Authority Pension Plan from 7 percent to 5.5 percent for the next two years.

According to information provided by Colleen Deer, a representative from Mockenhaupt Benefits Group, the interest rate assumption is the long-term expected rate of return on the fund. Dr. Pat Musto, chairman of the Valley Joint Sewer Authority, explained that the interest rate assumption for the pension plan the past two years has been considerably less than anticipated, due to economic downturn. As a result, Musto said, the board felt it should take a more conservative financial stand by lowering the interest rate assumption to 5.5 percent for the next two years, in the hopes the pension plan would be able to make up the losses it previously had to absorb.

Musto said the board is also attempting to avoid having to pay out much larger sums of cash in the future. One advantage they have, he explained, is no one is currently drawing on the pension plan, but that will probably change within the next five to six years. If nothing is done, Musto said, the plan could have to pay out large sums of money to those entitled to pension benefits.

However, the board's action did not come without a price. With interest rate assumption set at 7 percent, the authority had to pay in $23,200 per year to meet its estimated Minimum Municipal Obligation (MMO) as mandated by law. By reducing the interest rate assumption to 5.5 percent, the amount of money the authority will have to pay increases to $70,600 over a two-year period.

However, Musto said the authority will not have to tap the general fund over the next two years in order to make the necessary MMO payment.

"This will have no effect on (sewer) rates, because we have the money to do it," he said.

The money will come from about $80,000 that the authority will realize as part of the money earmarked for the renovations to the local sewer plant. Musto said the authority had paid out the money from the general fund for engineering costs. Part of the money - $16,000 - was paid to the authority via Pennsylvania's Act 537. The rest, he said, recently became available as a line of credit the authority has been raising in order to pay for the renovation project.

The project, Musto continued, is being implemented because of new state and federal mandates, which require local sewer plants to treat water for nitrogen and phosphorus. The Valley sewer plant, as well as most other sewage treatment plants across the state, don't have the capability to handle this, which is why such renovations are being done. Musto said it is anticipated that it will cost between $14 million to $16 million to have such renovations performed at the Valley plant. However, he cautioned that those figures are very preliminary at this point, and they won't have a better idea until the engineering firm performs a more complete study.

C.J. Marshall can be reached at (570) 265-1630; e-mail: cjmarshall@thedailyreview.com.

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