Pen­sion re­form: Con­sol­i­da­tion is not the an­swer

The Advance of Bucks County - - OPINION -

Penn­syl­va­nia’s pen­sion fund­ing prob­lem didn’t hap­pen overnight, and you can’t fix it overnight. Re­cently, there’s been a lot of buzz about pen­sion re­form, and right­fully so. Penn­syl­va­nia is on the fast track to a cri­sis. The com­mon­wealth’s pen­sion pro­grams for some 800,000 state work­ers and pub­lic school teach­ers are in the hole to the tune of $40 bil­lion, a fig­ure that’s expected to climb to $65 bil­lion by 2021 if law­mak­ers don’t do some­thing soon.

Has­tened by Gov. Tom Cor­bett, the Gen­eral Assem­bly and oth­ers are search­ing for so­lu­tions, some of which have come to light dur­ing a se­ries of fact-find­ing meet­ings hosted by the Penn­syl­va­nia Em­ployee Re­tire­ment Com­mis­sion. The hear­ings have fo­cused on the state’s fi­nan­cial predica­ment, which may force more cuts in ser­vices to fund promised re­tire­ment ben­e­fits.

It ap­pears the meet­ings have also served as a stage to ex­ag­ger­ate the de­gree of Penn­syl­va­nia’s pen­sion troubles, with calls to con­sol­i­date hun­dreds of healthy mu­nic­i­pal plans to fund the debts of a few. This “re­dis­tri­bu­tion of pen­sion wealth” is a bad idea and pe­nal­izes the suc­cess­ful while re­ward­ing those in trou­ble.

Yes, it’s true that a few lo­cal gov­ern­ments, pri­mar­ily large and mid­size cities like Philadel­phia, Pitts­burgh, and Scran­ton, have re­tire­ment pro­grams that are un­der­wa­ter, too. But it’s in­ac­cu­rate to paint the pic­ture that ev­ery mu­nic­i­pal pen­sion plan is trou­bled, or “woe­fully un­der­funded,” as some have sug­gested.

The truth is, many com­mu­ni­ties – large, small, ru­ral, ur­ban, and subur­ban – over­see plans that are do­ing Oh, and in some cases, they’re do­ing much bet­ter than Oh.

Proof of this comes from PERC it­self, which mea­sures the dis­tress level of the 1,439 mu­nic­i­pal pen­sion plans that re­ceive roughly $200 mil­lion a year in state aid. The money off­sets the costs of state-man­dated re­tire­ment ben­e­fits for lo­cal po­lice and fire­fight­ers and sup­ports pen­sion plans for non-uni­formed mu­nic­i­pal em­ploy­ees, too.

What quickly be­comes clear from the most re­cent PERC re­port is that the num­ber of sol­vent mu­nic­i­pal pen­sion plans sig­nif­i­cantly ex­ceeds the num­ber of trou­bled ones.

In 2011, 776 were clas­si­fied as “not dis­tressed” while just 27, in­clud­ing those be­long­ing to Pitts­burgh and Philadel- phia, were de­clared “se­verely dis­tressed,” a term that means the plans are funded at less than 50 per­cent of li­a­bil­i­ties.

This re­al­ity, how­ever, hasn’t stopped some from turn­ing the pen­sion prob­lems of a few into a statewide epi­demic, and what’s their rem­edy? Lump ev­ery­one to­gether, much like the com­mon­wealth did for state em­ploy­ees and teach­ers, and cre­ate a sin­gle statewide mu­nic­i­pal pen­sion sys­tem.

The con­sol­i­da­tion crowd needs to face the fact: The State Em­ploy­ees Re­tire­ment Sys­tem and the Pub­lic School Em­ploy­ees Re­tire­ment Sys­tem are big­ger, but they’re cer­tainly not bet­ter. In fact, they are the lion’s share of Penn­syl­va­nia’s pen­sion debt and demon­strate what can hap­pen to large one-size-fits-all sys­tems.

De­spite this cur­rent state of af­fairs, though, some state of­fi­cials continue to in­sist that the com­mon­wealth is bet­ter equipped to over­see mu­nic­i­pal pen­sion plans than lo­cal gov­ern­ment lead­ers, many of whom have their pen­sion houses in or­der. How’s that for irony? Law­mak­ers should in­stead fo­cus on the state and its more se­verely trou­bled pen­sion sys­tems. Then, af­ter they know how to tame that $40 bil­lion (and grow­ing) beast should they turn their at­ten­tion to mu­nic­i­pal pen­sion plans. But rather than fo­cus on con­sol­i­da­tion, law­mak­ers should pro­vide lo­cal lead­ers with com­mon-sense re­forms that not only pre­serve locally ad­min­is­tered pen­sion plans but also do some­thing we all agree makes sense: save tax dol­lars.

There are some so­lu­tions al­ready on the ta­ble that would help all mu­nic­i­pal pen­sion plans right away, and there is no need to wait. A pro­posal by the Coali­tion for Sus­tain­able Com­mu­ni­ties would be a good first step. The mea­sure would en­able mu­nic­i­pal­i­ties to move away from the de­fined ben­e­fit plans man­dated by law for some lo­cal po­lice and fire­fight­ers and re­move re­tire­ment ben­e­fits from the col­lec­tive bar­gain­ing process – a prac­tice re­spon­si­ble for strap- ping cur­rent and fu­ture gen­er­a­tions with bud­get-drain­ing obli­ga­tions.

The way I see it, the pen­sion cri­sis rem­edy shouldn’t be to make the healthy swal­low the same bad medicine as those in trou­ble. In­stead, we should be tai­lor­ing so­lu­tions that keep healthy plans off life sup­port and put ail­ing ones back on the road to re­cov­ery.

(David Sanko is the ex­ec­u­tive di­rec­tor of the Penn­syl­va­nia State As­so­ci­a­tion of Town­ship Su­per­vi­sors)

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