Pa. Senate bill a step toward easing pension crisis

By Beth Anne Mumford

You are on the hook for nearly $4,000 to the government in Harrisburg.

That $4,000 is your share of the astounding $50 billion in unfunded pension payments for state public employee retirement plans — meaning promises the government has made that it cannot afford to keep. It's a big obligation that worsens daily. Failing to deal with it means either massive tax increases or painful cuts to essential services like roads, schools, and police.

Fortunately, the state Senate is stepping up, with plans this week to vote on legislation to ensure a sustainable retirement program for state workers. Every senator should vote yes on Senate Bill 1.

Fifteen years ago, the state had fully funded pension systems. The problems started in 2001, when the legislature ramped up pension benefits without a plan to pay for it. The state incurred an $8 billion debt, which it was supposed to pay off in 10 years. In 2002, the legislature again increased benefits, adding $2 billion more in debt.

When the market crashed in 2007, the burden grew: We now owe a mind-boggling $50 billion, and it's getting in the way of responsible government.

That massive liability is crowding out spending for other state functions, such as transportation, education, and public safety.

Has this spurred our legislature to pass meaningful reforms? No. Lawmakers have kicked the can down the road, leaving the problem for future generations (coincidentally, when many of these legislators will have retired).

Gov. Wolf claims that his proposed tax hikes will fix the pension liability. Yet the revenue from the governor's tax hikes on hard-working families will only start to pay a fraction of the $50 billion. Worse, raising taxes will hamper the very economic growth Pennsylvania needs.

Senate Bill 1 is a better option. It would lower the state's long-term liability without harming current retirees by moving future employees into a defined-contribution plan, which is the most important step toward making the pension system sustainable. A 401(k), or defined-contribution plan, gives workers control over their retirement and is what the majority of private-sector employers provide. Employees can take it with them if they switch jobs and contribute their own funds, in addition to their employer's contribution. Workers should have choices, so at some point the legislature should allow state employees to move their retirement into a 401(k) plan.

Additionally, SB 1 improves the calculation for retirement benefits so that it favors long-term employees who work hard over those who might game the system in their last few years. Currently, retirees' base pension is based on their average pay over their highest-paid three years of work. That formula incentivizes workers to drive up their average base pay by working lots of overtime right before retiring.

SB 1 would limit this salary spike by basing a pension on the last five years of an employee's base pay.

These reforms would give the state's public employees the same benefits that most private-sector workers enjoy, as well as provide them with greater control and responsibility for their own retirement. At the same time, these reforms would reduce our total obligation, allowing the commonwealth to honor its commitments to workers and continue to meet the core needs of Pennsylvanians.

Fixing our pension crisis won't be easy and it won't happen overnight. But it will continue to worsen if we don't start addressing it now. All Pennsylvanians will benefit from reforms that honor our pension obligations and reduce the financial burden on future generations. Our lawmakers must face the problem, and SB 1 is a good start.

Beth Anne Mumford is the Pennsylvania state director of Americans for Prosperity (www.americansforprosperity.org). bmumford@afphq.org