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State pols talk pension reform: Are they serious this time?

Once again, they’re talking about pension reform in Harrisburg. The latest idea is to create a “hybrid” pension plan for newly hired state employees that features the traditional defined-benefit pension for basic coverage, then adds a 401(k)-type defined-contribution program for benefit levels tied to wages over a certain level.

Some people see the hybrid idea as a reasonable first step. Others see it as a timid plan that won’t save enough money because it affects only future employees. Union groups criticize it, saying state workers will suffer. That’s a typical range of reactions.

The latest proposal is surfacing just weeks before the deadline for the 2014-15 state budget. In fact, Gov. Tom Corbett is already including about $170 million in pension savings for the coming year’s spending plan.

That might be politically useful, but it understates the seriousness of pension reform. Just tweaking the state’s two big public employee pensions to plug a budget hole and record some savings 30 years down the road is not meaningful pension reform.

It’s true that pension reform is a politically charged issue, but other states and some major cities have in recent years made serious proposals and pushed real reforms, despite the political consequences.

And while the most vocal pension-reform critics are often unions and Democrats, the pension crisis across the United States is not a partisan issue. Tough pension reform proposals have been backed by Democratic governors, Democratic big-city mayors and in areas that vote heavily Democratic — because pension reform is about keeping states and cities out of bankruptcy. It’s also about sparing taxpayers from a crushing burden to pay for retired government workers.

The current Pennsylvania proposal, sponsored by state Rep. Mike Tobash, R-Schuylkill, is a reasonable starting point. But it cannot be seen as real reform.

Harrisburg pols should realize that people in this state want real reform and don’t see a problem shifting some pension benefits to a 401(k)-style system (even for current employees), since that’s what most private-sector retirement plans are today.

It’s true that 401(k) programs are vulnerable to market ups and downs, but those risks can be minimized by shifting workers into the lowest-risk categories of investments as they approach retirement age.

It’s worth remembering that at least some of the $48 billion shortfall in Pennsylvania’s two big public-employee pensions can be traced back to 2001 when state lawmakers, seeing a surplus in the pension funds, voted themselves a 50-percent pension increase. Soon after lawmakers raised the pension “multiplier,” other state employees, including public school teachers and their unions, realized it amounted to a 50-percent pension boost and demanded their own sweetheart deal. Bending to the political pressure, lawmakers quickly passed a 25-percent pension increase for most other state workers, including public school teachers.

To be fair, the 2001 pension grab is only a part of the pension crisis in Pennsylvania. Other states have similar, even worse, pension-funding shortfalls.

Pension crises are a national problem and real solutions will require sacrifices, meaning taxpayers will probably pay more, but pension beneficiaries should either pay more or receive less in benefits.

Tobash’s “hybrid” reform bill would impact only future state workers, and while that makes reform politically easier, it doesn’t help much in the short or medium term. Only after 30 years would Tobash’s plan produce an estimated $11 billion in savings.

Other states and cities are taking stronger stands by telling current employees that they can either pay more for the promised benefits, or keep contributing the same amount but receive less in benefits.

Some states or cities have frozen cost-of-living increases for beneficiaries as a way to produce some short-term savings. Others are rolling back the “multiplier” — something that should happen in Harrisburg to repair some of the financial damage caused by the 2001 pension grab.

Whatever is done, pension reform should be real reform, not tinkering around the edges or accounting gimmicks that just push the pain off to future years when other politicians will be in office.

At this point, the latest pension-reform talk in Harrisburg doesn’t sound as serious as it should. That’s unfortunate, but not surprising.

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