By David M. Sanko
Executive Director, Pa. State Association of Township Supervisors
Pennsylvania’s pension funding problem didn’t happen overnight, and you can’t fix it overnight. Recently, there’s been a lot of buzz about pension reform, and rightfully so. Pennsylvania is on the fast track to a crisis.
The commonwealth’s pension programs for some 800,000 state workers and public school teachers are in the hole to the tune of $40 billion, a figure that’s expected to climb to $65 billion by 2021 if lawmakers don’t do something soon.
Hastened by Gov. Tom Corbett, the General Assembly and others are searching for solutions, some of which have come to light during a series of fact-finding meetings hosted by the Pennsylvania Employee Retirement Commission. The hearings have focused on the state’s financial predicament, which may force more cuts in services to fund promised retirement benefits.
It appears the meetings have also served as a stage to exaggerate the degree of Pennsylvania’s pension troubles, with calls to consolidate hundreds of healthy municipal plans to fund the debts of a few. This “redistribution of pension wealth” is a bad idea and penalizes the successful while rewarding those in trouble.
Yes, it’s true that a few local governments, primarily large and midsize cities like Philadelphia, Pittsburgh, and Scranton, have retirement programs that are underwater, too. But it’s inaccurate to paint the picture that every municipal pension plan is troubled, or “woefully underfunded,” as some have suggested.
The truth is, many communities – large, small, rural, urban, and suburban – oversee plans that are doing OK, and in some cases, they’re doing much better than OK.
Proof of this comes from PERC itself, which measures the distress level of the 1,439 municipal pension plans that receive roughly $200 million a year in state aid. The money offsets the costs of state-mandated retirement benefits for local police and firefighters and supports pension plans for non-uniformed municipal employees, too.
What quickly becomes clear from the most recent PERC report is that the number of solvent municipal pension plans significantly exceeds the number of troubled ones.
In 2011, 776 were classified as “not distressed” while just 27, including those belonging to Pittsburgh and Philadelphia, were declared “severely distressed,” a term that means the plans are funded at less than 50 percent of liabilities.
This reality, however, hasn’t stopped some from turning the pension problems of a few into a statewide epidemic, and what’s their remedy? Lump everyone together, much like the commonwealth did for state employees and teachers, and create a single statewide municipal pension system.
The consolidation crowd needs to face the fact: The State Employees Retirement System and the Public School Employees Retirement System are bigger, but they’re certainly not better. In fact, they are the lion’s share of Pennsylvania’s pension debt and demonstrate what can happen to large one-size-fits-all systems.
Despite this current state of affairs, though, some state officials continue to insist that the commonwealth is better equipped to oversee municipal pension plans than local government leaders, many of whom have their pension houses in order.
How’s that for irony?
Lawmakers should instead focus on the state and its more severely troubled pension systems. Then, after they know how to tame that $40 billion (and growing) beast should they turn their attention to municipal pension plans. But rather than focus on consolidation, lawmakers should provide local leaders with common-sense reforms that not only preserve locally administered pension plans but also do something we all agree makes sense: save tax dollars.
There are some solutions already on the table that would help all municipal pension plans right away, and there is no need to wait. A proposal by the Coalition for Sustainable Communities would be a good first step. The measure would enable municipalities to move away from the defined benefit plans mandated by law for some local police and firefighters and remove retirement benefits from the collective bargaining process – a practice responsible for strapping current and future generations with budget-draining obligations.
The way I see it, the pension crisis remedy shouldn’t be to make the healthy swallow the same bad medicine as those in trouble. Instead, we should be tailoring solutions that keep healthy plans off life support and put ailing ones back on the road to recovery.
I remain confused, in times like these, why the state "mandates" retirement funding it cannot afford. This is a benefit, as is profit sharing and matching 401k that small businesses at challenged to maintain for their employees. In some cases, under times of stress, these benefits must be reduced, o completely removed. Why doesn't the state act accordingly, explaining that it cannot continue to dump $200 million into funding it cannot afford. Where is the responsibility?
Our Elected officials could change this rule within weeks if they had spines and cared about the middleclass. The reason they do not is because to many are jobbers!
To typical pensions for teacher's (My wife is one) is based on a formula. Final average salary x a multiplier x Number of years of service. No once does it take into account how much money is in the pension fund thay are drawing against. NOT ONCE! Pensions should be frozen and replaced with 401K/403B plans with the schools providing a match. Just my opinion.
Remember... Teachers, police and fireman are special people. They should not have to worry about any of the everyday problems that the taxpaying vermin do. Just shut up and pay more to insure these special people can retire at 40 (cops and firemen) or 55 (teachers). Oh, and don't forget to let the cops and firemen PAD THEIR PENSION with tons of overtime in their last year on the job.... they're special... they deserve to do that.
In my opinion, the 6 greatest deceptions the average tax payer is too busy to understand and does not know how brutally taxing they are to themselves be as follows. 1st) Government worker Defined Pension programs and healthcare benefits they do not have to contribute to or do so very minimally as compared to the average tax payer. 2nd) Government cronyism and jobberism abusing tax payer dollars. Our government is run by lawyers and corporate lobbyist and most definitely not by the people for the people. 3rd) Teacher, Police and Firefighters are very well paid for the work they perform and the risk they take. Just look at the statistics…much lower paid jobs in logging, garbage and other work have a much higher fatality rate than fire and police. And teachers get paid 75-80K a year on average for 8 month work year.
4th) School tax has become an abomination of abuse. Yes, teachers do deserve to be fairly paid. However, the collective bargaining agreements (CBA) have created vehicles of manipulation to extract wealth from the middle class without providing greater value to teaching our children. 5th) Our currency is not worth the paper it is printed on. When and how the realization and full impact of this deception will come to fruition is not known, but it is coming… 6) People tend to vote the party line before what’s best for a greater America. The media manipulates facts and minds because they are big business with self-reward in their hearts. Lastly, I exclude all government military soldiers from any of the above noted cynicism. For they and their families are due everything and anything they need, to provide a quality of life, if after being called to serve in war for our country they return injured or harmed in any way.
Here's the problem. It takes people to run a government. Roads don't repair themselves, communities don't police themselves, students don't teach themselves. To argue we can't afford to do any of those things is fraudulent. Can't afford to pay wages, benefits, utility bills, pensions, road improvements? Sounds like you can't run a municipality. Trying running one for free. How about a holiday not paying for MacAdam, snow removal, criminal background checks, because they are all too expensive. The only thing you can afford is your outrageous salary and benefits because without you we can't plow roads, educate children and keep our community safe. How about this? How about we eliminate the overhead and pay the people who actually work.. How about that big guy?
the current short fall in the teacher pension was caused by 4 events. these are 2 recessions (90's tech bubble and the housing bubble), governor ridge and ACT 1. when governor ridge took office he passed a law giving a pension holiday to the state and local school districts. this holiday essentially made the contributions the state made to the pension zero and made the contributions school districts made less than 1%. this went on for years and saved the tax payer a lot of money. the tech bubble broke with obvious losses to everyone's retirement accounts. ACT 1 passed stating local school districts can't raise taxes over 1.7% of last year's budget without a vote from the public. right now all school districts are in trouble. they aren't getting the "make up" money from the state. corbett is telling school districts to do more with less. over 14,000 teachers have been laid off in the state of PA over the past 3 years, but the state has taken in extra tax revenue the past 2 years. i believe it is somewhere over $700 million. finally. . . housing bubble pops with obvious losses to retirement accounts again. teachers pay over 7% of their salary into the pension system. PSERS isn't a traditional "employee only contributes" plan. teachers never were given a holiday (nor should they have been given one).
I am also very curious. Had all state employees been on a 401K type program as opposed to a pensions system, what would PA's economy look like now? I find it very ironic that the companies who got us into the real mess are now preaching that they will save us. I believe it was taxpayers dollars that bailed the banks out, right? But now we should trust them? Finally, can someone more 'in the know' answer this for me: If I have a 401K with company X and my consultant is John Doe, does John Doe make money off of my account (commission or similar)?
Year Average Salary % Employee Contribution $ Contribution
teachers, when they retire, don't get health benefits. they just get a pension that they have paid into. again, they pay ~+7% of their salary, over a 30-40 year career, into this system. no 401K. no matching contribution since governor ridge (as mentioned in my previous post). do the math. . . it is out there.
regarding the total amount of $$. many people who work in similar professional careers, and have 401k's, amass similar amounts of wealth over the lifetime of their earnings. that is if i use your same formula and say these workers contribute 5%-10% of their salary, get matched 5%-10% of their salary and earn 5%-10% interest over the lifetime of their retirement nest egg. let us not forget that these same folks may also get stock options and bonuses that aren't calculated into the 401k equation. public and private plans have pros and cons. a big pro of a 401K is that all the money you put in is yours and you can take the entire nest egg out all at once (not advised because of tax reasons). a person with a pension can not. they get monthly checks like S.S. non of the above really matters. the issue isn't what teachers have or what a person from the pharma industry has, but how politicians have purposely broken the pension system so as to do away with public education in our state. i can not afford private school for all my children and rely on public school for their education. for all our sakes, i hope we can put our differences aside soon.
Finally, can someone more 'in the know' answer this for me: If I have a 401K with company X and my consultant is John Doe, does John Doe make money off of my account (commission or similar)?
DJ2. 401k’s are a huge ruse. Employers typically match a small percentage of the employee’s own contribution using their company stock which is dilutive to real shareholder value and cost the company very little in real money. You are limited to what funds you can buy. These funds typically hold shares in your company stock also “wink-wink” and yes, there are expenses each fund has that pay for management and brokerage fees. Again, 401k were created as an collusive venture between the corporations who got to terminate defined pensions, wall-street where the employees 401K money got funneled too that now allows some greedy fat-cat to gamble with and our politicians who don’t have to play by the same rules they set-up that created 401K’s. In addition, unlike normal investments 401k are very restrictive in when and how an employee can sell out of them. So unlike normal investments that you can set sell order levels on when shares in your 401k start to tumble…you just get to watch.
Everyone, and I mean everyone, is taking a hit, or the state will have to disband all core services just to service the state's massive pension obligations. There must be some way in which state officials can enact a hybrid-transition from public liability into ublic-private funding streams. Gov. Christie of New Jersey requested that the teahers' unions support a 1% increase in their contributions. Because they rebuffed, Christie had to lay off teachers. Walker's buget reforms have saved millions of dollars for cities and school districts while preventing massive layoffs and tax increases. Pennsylvania has a similiar demographic to Wisconsin. Perhaps Corbett should initiate similar budget reforms.