Pa. pension reform within reach

By Stephen Herzenberg

When Pennsylvania's House of Representatives returns to Harrisburg this month, lawmakers will have a unique opportunity to enact a responsible solution to the public-employee pension crisis. With one vote, they can pass House Bill 2497, a pension-reform plan that balances the needs of taxpayers with those of workers who deliver public education and other essential services.

Pennsylvania's pension problems have been brewing for a long time. Over the past decade, inadequate (and sometimes nonexistent) contributions to pension funds by the commonwealth and school districts, combined with investment losses resulting from the 2008 financial meltdown, have created a staggering unfunded obligation to workers. Pension payments delayed by previous General Assemblies are now coming due.

State legislatures across the nation are grappling with how to adequately fund pension plans. Few have done so in a bipartisan manner. Now Pennsylvania is 99 percent of the way toward achieving a model bipartisan solution.

The state's now-outgoing Democratic-controlled House passed a pension-reform measure in June. The Republican-controlled Senate made some sensible amendments in October, sending the measure back to the House. The bill passed with overwhelming, bipartisan support on both occasions.

With final passage of these pension reforms, Pennsylvania's legislature could provide a rare example of lawmakers working together to resolve a pressing problem, delivering a solution that reduces costs for taxpayers, protects retirement security for employees, and strengthens our schools.

The legislation would cut needed contributions from the state and school districts by $8.7 billion over the next four years alone, taking pressure off state and local taxpayers. The timing couldn't be better: The commonwealth faces a recession-driven revenue crisis, stands to lose federal recovery funds next year, and has already cut services to the bone.

Pension savings are needed to preserve programs that spur job creation, ensure public safety, and help families get back on their feet. And besides relieving pressure on the state budget, pension reform would provide relief to local taxpayers by reducing a projected spike in pension costs for school districts.

The reform legislation also calls on employees to contribute more toward their retirement, further reducing costs to taxpayers. Unlike their employers, government workers have never taken a holiday from their pension obligations, contributing up to 7.5 percent of every dollar they earned. Under the reform bill, new employees would contribute more and share some market risk.

The pension legislation is right to retain guaranteed, or "defined benefit," pension payments based on years of service. As Americans were rudely reminded over the past three years, the alternative, 401(k)-type plans can fluctuate wildly and leave retirees vulnerable.

Defined-benefit plans are also a better deal for taxpayers, delivering retirement security at a lower cost. That's because the administrative costs and fees attached to 401(k)-type plans chew up retirement savings.

Defined-benefit pension plans also boost the state economy, benefiting all Pennsylvanians. They ensure that more retirement savings stay in the pockets of the middle class and go to local communities rather than out-of-state fund managers. Public pension funds can also invest in job-creation projects that have been shown to yield good returns.

Despite all these merits, H.B. 2497 will die with the legislative session if the House fails to act before the end of the year. For the sake of taxpayers and public employees, the legislature should strive to get this bipartisan pension reform to the governor's desk without further amendments.