Pa.’s pen­sion time bomb still tick­ing

Springfield Sun - - OPINION -

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.

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