Pennsylvania’s pension crisis is staring it in the face. It’s time for the legislature to act quickly to devise a solution that balances the needs of taxpayers, workers, and retirees.
It is now estimated that the cost of taxpayers’ contributions to pension funds for state employees and teachers will soar from less than $1 billion now to nearly $6 billion in three years.
Taxpayers can’t afford such an abrupt hit. Many of them are also on the hook for their towns’ underfunded municipal pension systems, such as Philadelphia’s.
School districts’ share of contributions to the teachers’ pension system is set to triple, from $660 million to about $1.9 billion. Homeowners could see annual property tax increases of $500.
Three culprits caused the “rate spike”: stock-market plunges, an increase in benefits granted in 2001 by the legislature and then-Gov. Tom Ridge, and the state’s failure to contribute adequately to the funds in past years.
Yet the state and school districts must honor their contractual promises to people who are counting on these retirement benefits. There are 240,000 active employees and 168,000 retirees in the school employees’ pension system, and an additional 110,000 active workers and 107,000 retirees in the state government pension system.
There are no easy fixes. But one promising path is to combine Gov. Rendell’s plan to stretch out the short-term burden with a proposal by Republican legislators for long-term reform of the teachers’ pension system.
Rendell wants to re-amortize the pension liabilities over 30 years. He’d phase in the increases over the next 10 years. Workers’ benefits wouldn’t be reduced, and taxpayers wouldn’t face a large burden all at once. But this plan also pushes the problem down the road.
A long-term pension solution with merit has been offered by Sen. Eugene Yaw (R., Lycoming) and Rep. Glen Grell (R., Cumberland). They would change the pension system for future school employees from a defined-benefit plan to a blended system, which includes benefits guaranteed by employers and contributions from workers.
This proposal wouldn’t affect benefits of current retirees or any teachers now in the system. It would likely result in lower benefits for future employees.
The Pennsylvania School Boards Association has endorsed this hybrid plan. The Pennsylvania State Education Association, the teachers’ union, opposes it.
PSEA spokesman Wythe Keever said three states that tried similar plans scrapped them. Two states shifted to more conventional 401(k)-style plans, without employee-guaranteed benefits.
The legislature needs to act with urgency. That won’t be easy, considering Democrats’ traditional alliance with teachers’ unions. But doing nothing is no longer an option in this crisis.