Empowered Municipality

Pension Crisis in Pennsylvania

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There is an 800 lbs gorilla in Harrisburg and it is the Public Pension crisis. There are as many opinions on how to fix it as their grains of sand.

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But hey, one thing is certain, at least we know it exists and when this financial tsunami is due to hit.

During the 1990’s PSERS (Public School Employee Retirement System) and SERS (State Employees Retirement System) enjoyed huge investment gains and saw pension fund reach 123 percent. The legislature decided in May of 2001 to reduce the state’s contribution to the fund into law now known as Act 9 of 2001. Four months later the world plunged into a recession and pension funds took a glancing blow but still not enough to cause alarm. In 2002 the legislature passed into law Act 40 which continues to lower the states contribution into the plan, increased the employee contribution rate to 7.5 percent and included a COLA (Cost of Living Adjustment).

Well let’s see, the fund received less from the state, a recession hit four months later and the following year, funds were reduced again, a cost of living adjustment was put into place retroactive to 2001, the employee contribution portion was increased 1.2 percent which was not nearly enough to cover the losses from the 2001 recession. In budget negotiations Governor Rendell and the legislature agreed to push back making substantially higher pension fund payments for 10 years.

But this recipe needed just one more ingredient; the recession of 2008. Now the once overfunded pension system is as 80 percent and a group of baby boomers are due to retire 2012 thru 2016. In order to make up the unfunded liabilities, it would cost every taxpayer $1500 to $2000 each year from the current $212. School districts around the state have increased their contribution from 3 percent to 7 percent in an effort to stave off huge tax increases but it will not be enough to get the fund to 90 percent.

A long-term pension solution with merit has been offered by Sen. Eugene Yaw (R., Lycoming) Senate Bill 1185 and Rep. Glen Grell (R., Cumberland) House Bill 2135. They would change the pension system for future school employees from a defined-benefit plan to a blended system, which includes benefits guaranteed by employers and contributions from workers. This proposal wouldn’t affect benefits of current retirees or any teachers now in the system.

The (PSBA) Pennsylvania School Boards Association has endorsed this plan. The Pennsylvania State Education Association, the teachers’ union, opposes it.

 Wythe Keever a spokesman for PSEA (Pennsylvania State Education Association) said three states that tried similar plans scrapped them. Two states shifted to more conventional 401(k)-style plans, without employee-guaranteed benefits.

 "Any suggestion in the budget next week that would say we can reduce the current contribution rate and therefore free up funds to be used in other areas of the general fund...that is not assisting this pension crisis that we have," said Rep. Douglas Reichley (R-Berks, Lehigh).

 "The state employees and the teachers have been putting their fair share in every year and we have not.  Shame on us that it hasn't occurred, we should have been doing this all along," said Rep Mario Scavello (R-Monroe). The Rendell administration wants to in essence refinance the debt and stick the past ten years worth of payments to the back of the loan, but shifting payments into the future would add to overall costs and will not make the problem go away, said Bob Gentzel, spokesman for the State Employees' Retirement System. There are also rumors of issuing pension obligation bonds, using federal money or a new version of the financial structure changes that Rendell and lawmakers imposed in 2003. Such moves may provide limited help, but pension officials warned senators not to hope for a silver bullet. "It's a debt that incurs interest the longer it sits there," Gentzel said. "There's no free lunch."

I've included a link to an overview from Pew Charitable Trust with a focus on Pennsylvania. These folks are fantastic on crunching numbers and their graphs will put things in perspective. 

by Pearre Dean


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