The Advance of Bucks County - - OPINION -

ince tak­ing of­fice as your gover­nor, I have made pub­lic pen­sion re­form one of my top leg­isla­tive pri­or­i­ties. Penn­syl­va­nia is in the midst of a pen­sion cri­sis.

Penn­syl­va­nia’s two pub­lic pen­sion sys­tems, the State Em­ployee Re­tire­ment Sys­tem (SERSF and the Pub­lic School Em­ploy­ees’ Re­tire­ment Sys­tem (PSERSF, are badly in debt. This is a prob­lem that was wait­ing for me when I took of­fice, but one I am de­ter­mined to fix.

How bad is the prob­lem? At the end of 2011, both sys­tems had a com­bined debt of $41 bil­lion. At the end of 2012, it had in­creased to over $47 bil­lion. This equates to an in­crease of more than $6 bil­lion in one year, $510 mil­lion each month, or nearly $17 mil­lion each day.

What’s worse, this debt is ex­pected to grow to more than $65 bil­lion by 2018. To elim­i­nate it, each house­hold in Penn­syl­va­nia would need to con­trib­ute ap­prox­i­mately $13,000.

The weight of this large debt will soon be felt by ev­ery tax­payer in Penn­syl­va­nia. This is be­cause cur­rent law re­quires the state and pub­lic school dis­tricts to dras­ti­cally in­crease their con­tri­bu­tions of state and lo­cal tax­payer funds to SERS and PSERS in or­der to help lower it.

For ex­am­ple, for fis­cal year 2010-11, the com­mon­wealth’s den­eral Fund con­trib­uted $518 mil­lion in state tax­payer dollars to SERS and PSERS. By fis­cal year 2017-18, that con­tri­bu­tion is ex­pected to rise to $3.359 bil­lion, a stag­ger­ing 548 per­cent in­crease.

This same dy­namic will also play out at a lo­cal level, where more than one-third of pub­lic school dis­tricts have ap­plied for ex­cep­tions to in­crease prop­erty taxes above nor­mal lim­its. For most of th­ese school dis­tricts, in­creas­ing pen­sion costs are to blame.

At its core, the root cause of the pub­lic pen­sion cri­sis in Penn­syl­va­nia is the type of plan af­forded to state and pub­lic school em­ploy­ees, which is called a de­fined ben­e­fit plan. This plan is ar­chaic by to­day’s stan­dards, be­cause it guar­an­tees pub­lic em­ploy­ees a spe­cific ben­e­fit upon re­tire­ment, re­gard­less of in­vest­ment per­for­mance.

By con­trast, most work­ers em­ployed in the pri­vate sec­tor have a de­fined con­tri­bu­tion plan, com­monly re­ferred to as a 401(kF, or no re­tire­ment plan at all. Un­der a de­fined con­tri­bu­tion plan, re­tire­ment ben­e­fits are de­ter­mined by em­ployer and em­ployee con­tri­bu­tions and the ac­tual re­turn earned on in­vest­ments.

Un­der my pen­sion re­form plan, new state and pub­lic school em­ploy­ees will be en­rolled in a de­fined con­tri­bu­tion plan, rather than a de­fined ben­e­fit plan.

In my view, con­ver­sion from a de­fined ben­e­fit plan to a de­fined con­tri­bu­tion plan is the most re­spon­si­ble way to pro­vide an ad­e­quate re­tire­ment for state and pub­lic school em­ploy­ees, while shield­ing the tax­pay­ers from bear­ing the bur­den of con­tribut­ing bil­lions to help bal­ance an out­dated and ex­pen­sive de­fined ben­e­fit plan that has be­come in­creas­ingly rare in the pri­vate sec­tor.

More­over, as I have said count­less times, my plan does noth­ing to af­fect the ben­e­fits of re­tirees or the ben­e­fits of cur­rent em­ploy­ees that have al­ready been earned.

So count me in. As gover­nor, I pledge to you that if the den­eral Assem­bly passes pen­sion re­form, I will gladly join new state and pub­lic school em­ploy­ees as a mem­ber of the new de­fined con­tri­bu­tion sys­tem. To­gether, we can solve this pen­sion cri­sis and make Penn­syl­va­nia a bet­ter and less ex­pen­sive place to live, work and raise a fam­ily.

(Tom Cor­bett is the gover­nor of Penn­syl­va­nia)

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