Undermining Retirement Security: Stephen Herzenberg's Testimony on Pension Legislation Before PA House
On August 14, 2012, Keystone Research Center economist and executive director Stephen Herzenberg testified before a joint hearing of the Pennsylvania House State Government and Finance committees on legislation that would transition the existing retirement system for state and public school employees from a defined benefit pension to a defined contribution 401(K)-type plan.
Dr. Herzenberg started off his testimony by explaining that the United States and Pennsylvania do face a pension crisis.
"The most serious crisis, from our perspective, is the erosion of retirement security in the private sector," he said. "Over the past three decades, even as productivity has grown steadily and profits in most periods have been robust, some employers have walked away from any shared obligation to fund a secure retirement."
If the state ends defined benefit pensions and moves toward a defined contribution 401(K) plan for public-sector workers, it "risks being a transfer from Main St. to Wall St, with lower benefits and potentially higher costs for taxpayers," Dr. Herzenberg testified. "The only way to save money is to make large cuts in benefits, as was already done in a responsible way under Act 120. One scenario is that cuts in benefits for new employees will lead to offsetting improvements in wages for higher-paid workers. Workers with a high-school degree or less are the ones most vulnerable to cuts in pension benefits without a need for offsetting wage increases, because these workers’ wages as well as benefits are higher in the public sector. This scenario would increase fees to financial services firms at the expense of sacrificing the small part of our economy within which custodians, food service workers, school secretaries, and bus drivers can earn a secure retirement. If legislators and Pennsylvanians step away from the ideology and the abstractions, and think about what this means in concrete and human terms, I think there will be wide agreement across the political spectrum that this is not a trade worth making."