Corbett should tell facts, be bold in fixing the state pension crisis
Looking ahead to next year, Gov. Tom Corbett is pledging to tackle pension reform. When he does step forward to provide some leadership on the public pension crisis, which he describes as a Pac-Man ready to eat most of the budget, taxpayers should expect a full examination of the problems and possible solutions.
Last month, Jeffrey Clay, executive director of the Public School Employees’ Retirement System, spoke to the Seneca Valley School Board about the PSERS crisis. He listed the recently lackluster stock market, underfunding by the state and mandates from the Legislature as causes.
One issue that Clay forgot to mention is the impact of the so-called pension grab of 2001. Clay’s forgetfulness should not be repeated by Corbett or anyone else talking about the underfunding of the state’s two big pensions — PSERS and SERS (State Employee Retirement System).
In 2001, near the height of the dot.com bubble on Wall Street, state lawmakers noticed a surplus in state pension funds — so they decided to take the money for themselves. Instead of being conservative and allowing the surplus to remain to protect against a stock market downturn, lawmakers voted themselves a 50 percent pension increase. It was an outrageous action that came about four years before the infamous 2 a.m. pay-raise vote by state lawmakers.
The pay-raise vote triggered such voter outrage that lawmakers were forced to reverse the big raises they voted themselves. If the pension grab had happened after the pay-raise vote, when voters and taxpayers were more alert to self-serving actions by the Legislature, it might have been reversed, too.
Instead, the 50 percent pension increase for lawmakers was quickly made worse by a 25 percent pension boost for other state employees, including public school teachers, after those groups complained about the lawmakers’ pension grab.
Corbett and others should make sure taxpayers realize that part of the current pension crisis is tied to the 2001 act of greed and fiscal recklessness by state lawmakers. And when solutions to the pension crisis are considered, forcing higher employee contributions from state lawmakers and all state employees to neutralize the impact of the ill-conceived pension grab should be at the top of the list.
Pennsylvania’s two big pension funds would be in trouble even without the 2001 pension grab. Most other states are facing pension crises; some are in worse shape than Pennsylvania. But the pension grab of 2001 should not be an added burden on taxpayers, who will likely have to pay more in any solution to the pension crisis.
Asking beneficiaries of the 2001 pension grab to contribute more is a sensible way to insulate taxpayers from that part of the problem. Requiring beneficiaries to contribute more to their pensions and health care is a part of other states’ solutions to their pension crises.
Lawmakers’ past efforts at pension reform have mostly been gimmicks that delayed the day of reckoning. But that day is fast approaching.
The Commonwealth Foundation notes that state pension costs are set to increase by $500 million a year for the next several years. As a percentage of state spending, contributions to the two big pensions will jump from 4.2 percent this year to 9.6 percent in 2017.
In addition to expecting beneficiaries to contribute more, taxpayers should hear about raising retirement ages and switching new employees to a 401(k)-style retirement plan, similar to most private-sector retirement programs.
Even with most of these appropriate changes, taxpayers will be paying more to fund the retirements of state lawmakers and other state employees, including public school teachers.
Part of any solution — and there is no easy fix — should be higher contributions from beneficiaries.
