On Nov. 23, Sen. Jake Corman, the incoming Pennsylvania Senate’s majority leader, appeared on WHP 21’s Face the State. Corman desires to reform the state Public School Employees’ Retirement System. His plan would reduce payments into the pension investment fund and move future hires into a new 401k-type pension.
Corman, R-Benner Township, is pushing the same “short-sighted” viewpoints of Gov. Tom Corbett, whose education plans the public soundly rejected in November’s election. Maybe we and Corman need to reflect upon the history of how the pension reached its present debt.
Founded in 1917, the PSERS pension never failed to meets it obligations. As recently as 2001, the funding level was at 123 percent. That year, Corman voted for the 50 percent increase just for legislators while 25 percent went to state workers and educators.
Tony May asked Corman about his vote for the pension increases back in 2001, which helped create the present pension debt. Corman defensively replied that he couldn’t anticipate two recessions happening in the past decade. The economy was contracting in the fall of 2000. The official start of the 2001 recession was in March, two months before Corman voted for pension increases. While in a recession, Corman chose to spend excess funds to increase his pension a lot and other employees half as much. How much financial wisdom does that reveal?
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Corman told May he heard when a pension is overfunded the benefits should rise. When a fund such as PSERS has been healthy for 84 years, why would anyone want to make decisions that decrease its value and stability — especially during a recession?
The fine print of the bill Corman supported in 2001 raised the multiplier from 2 to 2.5 while decreasing the time required to “vest” a pension from 10 to 5 years. Additionally, they directed school districts to decrease their contributions to almost 0 percent for three years. While the state and districts reduced contributions, educators faithfully contributed from every paycheck at an increased rate.
In 2003, after three years of reduced funding to the pension fund by the state and school districts, Corman’s legislature watched PSERS go from 123 percent funded to a growing debt. Instead of addressing the debt by once again making their fair share of state contributions along with local districts, the General Assembly chose to wait 10 years to catch up. Imagine if anyone chose to stop making payments on anything for 10 years. How much financial debt would result?
Corman claims we need reform by pushing a 401k-type pension as a “cure-all” to bring the budget into a glorious state. The problem with his 401k idea is the employer and state would be “required” to contribute. The reason we have the growing pension debt is underfunding by the state and districts. Even Gov. Corbett stated that a decade of underfunding led to an increasing debt. Corman’s 401k reform plan will fail because of the state’s history of not fully funding their share. Corman seems set on authoring a new pension plan that’s destined to fail and further increase the level of debt just to try to save a few dollars in this year’s budget.
Before pushing his reform ideas, maybe Corman needs to re-read the Pension Reform Act of 2010 that reversed the increases of 2001 for new hires, further increases employee contributions, and requires employee sharing in the risks of the stock market. The 2010 act already fixed the mistakes Corman and legislative colleagues made in 2001. Why do Corman and Corbett want to undo a bipartisan law that saves money?
Further “pension reform” proposed by Corman that further reduces benefits for future hires does nothing to address the present debt. The debt is here because of underfunding by both the state and school districts. The debt will continue to grow until the General Assembly chooses to fully honor their part in pension funding. The longer they delay filling the hole they created, the bigger the debt becomes.
After the mess Corman helped create in 2001 — and transformed into a bigger mess in 2003 — do we really want to follow his reforms that will further increase rather than decrease the debt?