Pa.’s pension time bomb still ticking
Tick … Tick … Tick. It sounds like Harrisburg has finally heard what has been called by one governor after another the “ticking time bomb” in the state’s budget mess.
We refer, of course, to the state’s two massive public employee pension plans, the State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS), which cover the bulk of state government employees as well as Keystone State public school teachers. Combined the two systems have 863,000 active, vested and retired members.
Both funds are hemorrhaging red ink, to the tune of some $62 billion. All that red ink trickles down, first eating up more and more of the state budget, and also creating monstrous headaches for local school boards, which are facing skyrocketing costs in their pension obligations.
This week the state Legislature finally did something about it — or at least decided to try to rein in future costs.
The state Senate passed a bill that would end the long practice of a defined benefit pension plan for state employees and teachers and place them instead into 401(k)-style plans that most private sector employees now are saddled with. The state House approved the measure Thursday morning, June 8. It now goes to Gov. Tom Wolf’s desk. The governor has indicated support for the measure.
Bottom line: Future teachers and state employees likely will see a smaller retirement benefit in the coming decades than those already in the system.
That’s an essential point. This will apply only to future hires; those already in the system will not see any reduction in their benefits, unless they choose on their own to do so. Don’t hold your breath waiting for that to happen.
Perhaps most fitting, the current proposal also would force the state’s legislators into the new plan, something they have always been averse to doing, despite a public outcry that they do exactly that.
Seems only fair to us, especially in light of the fact that it was actions by the Legislature that led in large part to the current dire situation.
It was back in 2001 when the state Legislature first put the wheels in motion on this fiscal mess. They did so by signing off on massive benefit increases — including their own — under the misguided notion that a booming market would allow the earnings to keep pace and cover expenses. Funny thing about the market – it goes down as well as up.
Then they doubled down by failing to make the required employer contributions and allowing school districts to do likewise.
Since then they have steadfastly refused to roll back benefits to the 2001 levels. Instead they have foisted this “ticking time bomb” off on the taxpayers.
The result? An explosion of red ink.
This is not the first trip down this path to 401(k) benefits for the Legislature. A similar push — again targeting new employees — failed just a few years ago.
The Legislature is now on board. Gov. Wolf supports the move.
The plan, which would give Pennsylvania something in common with 18 other states that utilize similar plans, is expected to save taxpayers more than $5 billion in direct pension benefits, as well as another $3 billion from reduced fees and costs through changes in the state’s investment portfolio. It is a prudent first step. But that also is part of the problem. It is only a first step, a needed measure to rein in future costs. But it does nothing to address the current deficit, and experts say it will not stop the rising pension obligation payments that are threatening to cause cataclysmic fiscal woes for local school districts.
The answer, most experts suggest, is to attack the pension deficit by paying it down with equal dollar contributions over the next 15 or 20 years.
Back in 2015, the governor suggested borrowing $3 billion in bonds to refinance the pension debt. Legislators opposed it. Wolf then vetoed a plan to end the traditional pension benefit for new hires in favor of a 401(k) style plan. That brings us to the present. The “ticking time bomb” is getting louder.
The state Legislature has taken a needed first step to prevent it from blowing up in the state’s face.
But make no mistake, it has not been defused.