Pennsylvania might guarantee state employees a pension, but mathematics has its own laws.
Legal protections mean nothing if a pension plan is insolvent. If our commonwealth is to avoid this, we need to act with a political resolve.
Every dollar saved through pension reform is another dollar for education, to help someone get services, or keep our citizens safe.
For nearly a decade beginning in 2001, the state expanded benefits without covering its costs and compounded the error by failing to pay what it should have into the State Employee Retirement System and the Pennsylvania School Employee Retirement System, underfunding the them by more than $5.9 billion.
The recession halted political games with pensions. Global financial chaos coupled with the near collapse of the mortgage industry started a chain of events that produced close to zero gain for investments — including pension funds.
Pennsylvania counted on a 7.5 percent return; the burden went to taxpayers, and the pension hole deepened.
SERS and PSERS combined are $50 billion shy of what’s needed to cover retirees. By 2018, the unfunded liability will pass $65 billion. Every household in this state will owe $13,000 to cover that debt.
Already, Moody’s and Fitch lowered the state’s rating. The lower the rating, the higher the interest. For PSERS, roughly half the cost is borne by school districts, meaning skyrocketing property taxes.
As more of the state budget goes to pension debt, the less available everything from classrooms to public safety. Job creators will turn away.
We must address our pension costs. This will mean hard choices, including how the state will pay for another $600 million to our current obligations to our employees and retirees.
The pension structure must be replaced with defined contribution plans. We can’t have taxpayers pay when investments fail. We shouldn’t rely on old return assumptions in the hope we can grow our way out of the problem. We also need to recognize people are living longer, which means added cost to taxpayers under the current systems.
State Rep. Mike Tobash introduced a plan to combine traditional benefits of a guaranteed retirement for employees with a contribution plan that would limit taxpayer liability if the pension’s investments underperform.
Taxpayer risk would be capped at $50,000 of a public employee’s or schoolteacher’s salary. Any retirement contribution above $50,000 would go into an account that will be self-directed and fully portable.
The Tobash plan only affects new employees. It also ensures existing benefits being paid out won’t be touched. Tobash’s plan will save taxpayers $11 billion over the cost of the current pension system.
Uncontrolled debt and pension cost threaten to undo our state’s progress. The problem won’t go away and the only question is whether we deal with pension debt now or whether it deals us a fiscal hammer blow later.
I am urging the General Assembly to pass pension reform by the end of this session. I ask each of you to call your local legislator and do the same.