The Daily Item, Sunbury, PA


November 26, 2012

Corbett: State pensions $41 billion in the hole

HARRISBURG —  Pennsylvania must consider all available options to get control of a public pension crisis in which the two main pension systems have a combined unfunded liability of more than $41 billion, Gov. Tom Corbett said Monday.

Benefits for the 310,000 retirees already collecting pension benefits are off-limits, Corbett said.

“Retirees earned their benefits. We cannot, nor do we contemplate any changes to their benefits,” Corbett said.

But the governor’s legal advisers believe that, while mid-stream changes for the 386,000 existing state and public school employees contributing to the pension system would be challenged in court, the state could make a strong case that the funding crisis justifies changes.

Existing employees would not lose any benefits they have already earned, but the state may look to change the rules moving forward.

Possible changes could include raising the retirement age, increasing the contribution rate paid by employees and adopting a defined contribution type of plan to replace the defined benefits plan currently used by the public sector unions, but almost nowhere else.

Corbett said that even among trade unions, most have agreed to changes to pension plans that eliminate defined-benefits models. Public sectors unions are an aberration.

None of the prior pension reform efforts in Pennsylvania have tried to change the rules for existing employees, focusing on changes for newly hired workers, said Budget Secretary Charles Zogby.

Zogby said the pension crisis was caused by short-sighted legislation from the months before 9/11 when the stock market was performing so strongly that legislators believed that investment growth could sustain the pension system without requiring the state or school districts to fully contribute their employee contributions. Pennsylvania has consistently under-funded its pension for more than a decade since even as the stock market tanked, causing the investment performance of the pension fund to suffer. Pennsylvania contributed a smaller share, 30 percent, toward its pension liability than 48 other states, Zogby said.

The average of all state pension systems was 89 percent.

Zogby said that projected increases in 2013-14 in pension costs, medical assistance costs, corrections costs and debt service will top $1.3 billion.

Of that, $511 million would be in the form of increased costs to the state as employer contributions to the pension systems, Zogby said.

Altogether, assuming the state sees 3 percent revenue growth, there would be only $818 million in additional revenue to cope with those increased costs.

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