Pension Primer #4: There You Go Again ... Governor’s Proposal Delays Public Pension Payments, Repeating Short-Sighted Practices That Drove Up Pension Debt
Keystone Pension Primers: As Pennsylvania policymakers, media, and citizens evaluate Governor Tom Corbett’s pension proposal unveiled February 5, 2013, the Keystone Research Center will release a series of short “pension primers” to demystify the often complex details at the heart of the pension debate. This is the third installment in that series.
Consensus exists that a major cause of Pennsylvania’s current pension debt was a decade of low—or no—contributions from the state and school districts. In state budgets signed by three previous Governors, the state shortchanged Pennsylvania’s pension plans for teachers, nurses, emergency responders, and other public servants—failing to make the financial contributions necessary to maintain pension fund health. Governor Corbett’s pension proposal introduced in early February would repeat this pattern, lowering state and school district pension contributions from 2013 through 2019, a period coinciding with the maximum time the Governor could remain in office.
Lowering pension contributions below the increases within the Pension Reform Act of 2010 (Act 120) would increase Pennsylvania’s pension debt by a total of between $4 billion and $5 billion by 2019, according to the Governor’s own estimates. Lower near-term pension contributions along with other aspects of the Governor’s proposal—primarily the costs of closing the state’s defined benefit pension funds—could add $25 billion to Pennsylvania’s pension debt by 2046, according to Pennsylvania Treasurer Rob McCord.
As public employers in Pennsylvania scaled back their pension contributions, employees continued to contribute to their pensions paycheck after paycheck. Over the period 2001 to 2009, Pennsylvania state and school employees contributed an average of 6.7% of their salaries toward pensions, nearly twice as much as contributed by Pennsylvania employers (the state and school districts). Pennsylvania’s ratio of employee-to-employer contributions flips the national pattern for public pensions; in the rest of the United States employers contribute nearly twice as much as employees. With unusually high employee contributions and unusually low employer contributions, the ratio of employee-to-employer contributions into Pennsylvania’s public pension plans was about 3.5 times the national average (excluding Pennsylvania) during 2001 to 2009.
Pennsylvania needs to maintain the scheduled increases in annual state and school district pension contributions established by the Pension Reform Act of 2010, gradually restoring state pension funds to 100% funding and an equitable balance between employer and employee contributions.