Letter to the editor: Pa.'s pension system isn't too generous, it's too underfunded
Letter to the Editor: Pa. pension system isn’t too generous, it’s too underfunded
A new plan to alter Pennsylvania’s public pension system is a bad deal for taxpayers, working people, and the integrity of Pennsylvania’s pension funds.
Details are scarce because the plan, which would negatively impact workers, the commonwealth and school districts for years to come, is still being crafted behind closed doors as part of the state budget negotiations between Gov. Tom Wolf and legislative leaders.
But here’s what we do know: The pension plan would slash in half the traditional — and already modest — pension for new Pennsylvania teachers, nurses, and state workers and force the rest of retirement contributions into 401(k)-type defined contribution savings accounts that are less efficient and more costly than the current pension system.
As a result of high Wall Street fees and lower investment returns, defined contribution savings accounts typically cost a lot more to deliver any given benefit. They also carry huge risk for employees, who can lose a quarter or more of their nest egg if they retire at the wrong time.
Contrary to recent statements made by Harrisburg “budgeteers” and in this newspaper, there are no savings from forcing younger teachers, nurses, and state workers into inefficient savings accounts. The cost to taxpayers of benefits for new employees will increase by nearly 50 percent over the current defined benefit pension plan.
The only potential for savings comes from cutting the benefits of current employees, and the state Supreme Court has ruled in previous cases that these kinds of changes are unconstitutional.
To come up with nearly $200 million in the 2015-16 budget, the new pension plan would arbitrarily lower state and school district contributions to pensions next year, cutting them even further below the amount that the pension systems’ experts (“actuaries”) estimate is needed to make up for shorting the pensions for 15 years.
This repeats exactly the past mistakes by Pennsylvania lawmakers that led to the pension debt. Pennsylvania ranks second-worst out of the 50 states since the early 2000s based on the paltry share of required contributions actually made to public pensions. And now the commonwealth would put pension payments on a credit card (again), ringing up more — not less — pension debt.
This proposal would cut benefits for younger teachers, nurses, and state workers by more than 15 percent. Without the promise of a secure pension, it will be hard to recruit and retain high-quality teachers who educate our children; law enforcement officers who protect lives and property; nurses who care for our families when we are sick; corrections workers guarding dangerous criminals; and state workers protecting and maintaining our highways, parks, and forests.
Although a popular talking point for politicians is that states and municipalities should close their traditional defined benefit plans and place all new employees in 401(k)-style defined contribution plans instead, they have the math 100 percent wrong.
The National Institute on Retirement Security has documented that the three states which moved to defined contribution plans experienced sharply increased taxpayer costs for pensions while providing employees with markedly poorer retirement benefits.
The Keystone Research Center has been examining public pension proposals in Harrisburg and published over a dozen “pension primers” since 2013. Here’s the bottom line.
Pensions serve a purpose. They give people a secure retirement so they don’t fall into poverty and require public assistance in their later years. A retirement system built around 401(k)-type savings accounts benefits Wall Street, which garners high fees, but it doesn’t benefit Main Street, which has already seen financial security gutted for the middle class in the private sector.
Pensions are underfunded mostly because elected officials have not provided adequate funding — not because pensions are too generous.
The average pension paid out to retired Pennsylvania public workers is about $25,000, a modest benefit after a career of service. Pennsylvania currently provides among the lowest public pension benefits in the nation, with its two main pension plans ranking 77th and 89th out of 100.
It doesn’t make sense to shift more risk onto working people, save no money, and increase pension debt.
Stephen Herzenberg, executive director of the Keystone Research Center, holds a Ph.D. in economics from MIT. The Keystone Research Center is a research and policy development organization in Harrisburg dedicated to using research and collaboration to propose workable policy alternatives.
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