Two Sides to the Valley
The Pa. Legislature Must Take Immediate, Sustainable Action to Resolve the Pension Crisis
By Michelle G. Young, Executive Vice President, Government and External Affairs | Greater Lehigh Valley Chamber of Commerce
It is difficult to be optimistic about our state’s finances when $2.6 billion of Pennsylvania’s $31 billion budget this year is dedicated to state-pension obligations – not even making a dent in our total owed.
How about revenue?
The total collections are about 2.5 percent lower than they should be. In November, the state came in at almost $80 million lower than budgeted.
We are facing an unfunded pension liability of approximately $60 billion.
How quickly will that increase? Well, in the past six years, it has doubled from $30 billion.
Our two state-pension funds, the Public School Employees Retirement System (PSERS) and the State Employees Retirement System (SERS), may run dry by the 2030s.
What would happen then? Most likely drastic cuts to the general fund, core programs and services, like school budgets or tax increases.
So the question you are probably asking is what is our Greater Lehigh Valley Chamber of Commerce doing about it?
The Chamber believes that SERS and PSERS participants should be placed in a defined contribution plan such as the 401(k) used in the private sector. What we need is the political will to do so. Action must be taken now to put new employees into a defined-contribution plan; place newly elected and re-elected legislators into the same defined-contribution plan; seek voluntary concessions from unions; raise the retirement age and offer reduced pensions for employees who voluntarily retire early; provide flexibility for changing market conditions and actuarial assumptions; and create a commission to provide oversight, make recommendations and evaluate ROI, management fees and performance.
The chamber opposes the “wait and see” approach of allowing Act 120 to be our solution. We don’t want to see current retirees hurt or tax liabilities shifted down to the local level. We don’t want to see bonds issued or a defined-market return rate.
Pennsylvania cannot afford to continue allowing retirees to receive more than one state public pension.
The chamber implores the legislature to take immediate, sustainable action to resolve the pension crisis. We welcome the opportunity to provide expertise to our members to solve this debacle.
Reducing Funding or Creating a Second Bureaucracy to Administer 401(k)-style Plans Are not the Way Back
By Pennsylvania State Representative
Peter Schweyer, District 22
State pensions have three basic sources of funding: contributions from the employees, proceeds from the investments and contributions from the employer – in this case, the Commonwealth. If one of these sources of funding falls short, the overall pension fund suffers.
We’re seeing it now. Investment proceeds took a hit during the recession of the mid-2000s, and employer contributions suffered under Governors Rendell and Corbett as the legislature decided to use money earmarked for pensions to fill budget holes. The result is the $66 billion deficit we have now.
This severe deficit is causing massive strain on our state budget, resulting in far fewer dollars for education, infrastructure and economic development.
It is understandable that many people are demanding reform. However, almost every reform measure actually cuts the only source of funding we haven’t cut – employee contributions. Reducing funding to a system already billions in the hole isn’t the way back to solvency. Creating a second bureaucracy to administer a new 401(k)-style plan won’t start saving us money until the middle of the century, while sending costs through the roof for the next decade.
I certainly care about the state’s budget in 2060, but I cannot vote to starve our schools and municipalities of dollars they need to educate our kids or stimulate job growth in 2017, 2020 or even 2030 to get there. The urge to “do something” should never overcome sound, responsible fiscal policy.