Pensions becoming unsustainable
Gov. Tom Corbett isn’t the only official calling for pension reform. Corbett calls the state’s $41 billion underfunding problem a “tapeworm” devouring the budget. Illinois, which faces $98 billion in unfunded pension liability, has “Squeezy the Pension Python,” created by Gov. Pat Quinn, according to a report in The Philadelphia Inquirer.
The issue many officials are calling a crisis, however, has not caught the imagination of either the general public or the legislators who must vote on the reforms being proposed.
A month after Corbett introduced pension reform as part of his budget proposal, legislators remains cool to the idea.
Corbett and Budget Secretary Charles Zogby have detailed the crisis to the Legislature, media groups and editorial writers. The fiscal crisis has been laid bare before taxpayers and voters, but little outrage or even concern has arisen in response.
School districts in the state are facing a jump in retirement contributions from 12.36 percent this year to 16.93 percent next year. In the Upper Dublin School District, for example, where salaries are being reduced for 2013-14 in order to balance the budget, the pension contribution will amount to $7 million, $1.9 million of which is due to the increased rate. The state provides half the pension contribution, with the district paying the other half, which translates to an additional $950,000 cost for the district.
Despite the pressure being put on school districts, the only outcry has come from union leaders poised to battle in court if Corbett’s plan advances. The question for the unions, as difficult as it may be, is whether layoffs and demotions, as those proposed in Upper Dublin, are in the best interests of their members.
The governor’s proposal would transition state pensions for new employees from defined benefit to defined contribution, meaning public employees would join much of the private sector in trusting their retirements to a 401(k) style plan. The governor would also freeze benefits for current employees and reducing the multiplier used to calculate pension amounts, two measures opposed by union leaders.
Corbett’s plan is projected to save $12 billion in future pension benefits, making a dent in the $41 billion liability. That’s if the Legislature approves it, which is not a certainty considering the lukewarm response in Harrisburg. Then there’s the legal challenges promised by unions.
Although most voters in Pennsylvania don’t seem outraged about this scenario, more should be.
The pension reforms proposed reflect economic realities that hit the private sector a long time ago. Employers have frozen pensions, reduced 401(k) contributions, cut salaries and eliminated similar benefits with no legal recourse.
Pension reform is not intended to rob teachers or public employees of the benefit they’ve earned. But the economic reality is that the system is currently too generous to be sustained for the future. That’s not going to happen until taxpayers/voters understand the seriousness of this situation and demand reform from legislators.