Pension system broken
Plan $26B in debtas school districts face tough road
November 19, 2012
JACKSON TWP — The executive director of the beleaguered Public School Employees’ Retirement System said Monday night the pension system is $26 billion in debt and there’s no easy solution to fix it. Jeffrey Clay spoke to the Seneca Valley School Board Monday night about the ailing and controversial pension plan, which covers hundreds of thousands of state school employees from bus drivers all the way up to superintendents. The school board for several years has been extremely critical of the pension system because, according to member Eric DiTullio, the state continues to foist unfunded mandates on school districts, which in turn drive up property taxes and deficits. Clay during the presentation said the PSERS pension system works if properly funded, but added it hasn’t been properly funded since 2002. The executive director cited both short-term and long-term issues that have negatively impacted the system. Among the short-term issues were two “historic” downturns in markets over the last 10 years. The market is a significant contributor because 70 percent of the pension systems’ funding came from investments in the last 10 years, while 18 percent of funding came from members of the plan and 12 percent came from employer contributions. Clay also placed blame on long-term factors like $6 billion in unfunded mandates passed from the state government down to the school boards. In addition, there are no sources of “new money” filtering into the plan because the state continually diverts financial assets elsewhere. Perhaps the most disheartening news, Clay said, is that pension reform by the state government will only “marginally impact” the problem. With that said, Clay added he expects some sort of pension reform to pass in Harrisburg within the first six months of next year. The state has a “great deal of motivation to make sure this is resolved,” he said, but that doesn’t mean there’s an easy solution to fixing the problem. Along the way of suggestions, the director said state politicians must find a dedicated and reliable funding source for PSERS. He also suggested a one-time cash infusion that could come if the state decides to privatize hundreds of state-owned liquor stores. Finally, the executive director said the pension plan’s assets must continue to perform well in market for it to remain viable. The presentation didn’t sit well with some board members like DiTullio, who called the PSERS system “stupid” and clearly broken. DiTullio asked Clay to take a message back to Harrisburg, a message to state politicians that they need to stop kicking liability and responsibility for the pension plan down to local school districts. Schools across the state will face multi-million dollar budget deficits if the scores of unfunded mandates continue coming down the pipeline, DiTullio said. The board member was not alone in his dissatisfaction. “There are many things about this presentation that disturbs me,” board member James Welsh said. Unfortunately, Clay added the district must comply under state law with any mandates and pension costs associated with the plan. The only way for schools to avoid paying the pension debt is by declaring bankruptcy, but can only do so after receiving permission from the state.