PHILADELPHIA (Feb. 26, 2013) - Gov. Corbett’s pension reform plan would increase costs for school districts, the state and ultimately for the state’s taxpayers dramatically, according to two pension briefs released by the Keystone Research Center today.
In a conference call with reporters across the state, Pennsylvania Treasurer Robert McCord and Keystone Research Center Economist and Executive Director Stephen Herzenberg said that between lower investment returns, reduced school district and state contributions and other factors, Gov. Corbett’s pension reform would actually increase the state’s unfunded pension liability by at least $5 billion by 2019.
“It’s clear from the research released today that the governor’s pension reform numbers just don’t add up for anyone – not for retirees, not for teachers and other public employees and certainly not for Pennsylvania taxpayers,” said Ted Kirsch, president of AFT Pennsylvania, which represents approximately 40,000 active and retired school and state employees.
“A dozen states – from New York to California – have conducted actuarial studies and concluded that converting traditional, defined-benefit pensions to defined-contribution (401-k or hybrid plans) means significantly smaller benefits for retirees at a far greater cost to taxpayers,” Kirsch said. “The three states – Michigan, Alaska and West Virginia – that closed their defined-benefit plans and moved new employees to defined-contribution retirement plans, as Gov. Corbett has proposed, saw their unfunded liabilities literally skyrocket.”
“Gov. Corbett’s pension reform proposal just doesn’t stand up to economic scrutiny. It doesn’t make sense logically; it has been discredited actuarially; and it hasn’t worked in reality where it has been tried,” Kirsch said.
Herzenberg produced two Pension Primers: Paying More for Less and Digging a Deeper Pension Hole ahead of state budget hearings on Wednesday, when officials from the Pennsylvania School Employees Retirement System and the State Employees Retirement System will testify in Harrisburg.
“It’s one more example of politicians trading short-term budget gains for long-term financial pain for taxpayers, school districts and the state itself,” Kirsch said.
Kirsch likened the governor’s pension restructuring, which was announced during Corbett’s Feb. 5 annual budget address, to curtailing payments on an outstanding credit card balance.
“If you or I reduced the payments on our credit card bill, the bill doesn’t go away. It gets bigger down the road,” Kirsch said. “That’s essentially what the governor’s proposal would do: reduce contributions for the remainder of his term of office – should he be re-elected in 2014 – and increase the unfunded pension liability by another $5 billion between now and 2019.”
McCord called the governor’s proposal to extend school districts' and state’s “contribution holiday” for another six years “a planned tax hike on anybody who is planning to live in Pennsylvania in 2019 and beyond.” Kirsch pointed out that the stock market crash and 10 years of lower-than-necessary contributions by employers were responsible for the majority of the state pension funds’ combined, $41 billion unfunded liability. Public employees – teachers, nurses, school bus drivers, prison guards and other workers – made their full contributions every pay day, even with employers were permitted contribution holidays during those years.
Herzenberg called the governor’s plan “a lose-lose for taxpayers. It increases state and school district debt for current pensions and drives up costs for future pensions. The last thing policymakers should do now is dig an even deeper hole.”
“Once again, Gov. Corbett’s fuzzy pension logic puts his political agenda ahead of the public’s interests,” Kirsch added. “The governor’s plan not only reduces employers’ contributions, but it dramatically reduces the investment returns on a shrinking pool of retirement funds at precisely the same time that increasing numbers of current employees will be retiring and drawing on those funds. Simply put, it sets in motion a series of factors that will result in higher taxes in Pennsylvania in 2019 and beyond.”
Kirsch said that Act 120, the bi-partisan pension reform bill passed in 2010, took a long-term approach to reducing the state’s liability, including reducing future benefits and creating a system that requires employees and employers to share the financial risks of future market downturns.
“We need to let Act 120 do what it was designed to do, which was to rebuild pension funding to healthy levels gradually, while providing retirement security to current retires and future generations,” Kirsch said.