Pennsylvania lawmakers face many difficult challenges, including a billion-dollar revenue shortfall, as they try to meet the June 30 deadline for enacting a balanced budget. They shouldn't add to their list of issues by adopting pension reforms that would only create future problems for seniors and taxpayers.
This election year is the wrong time to rush through sweeping public-pension changes that too few understand. Although there has been general discussion about addressing our public-pension shortfall, lawmakers now face a specific proposal that neither the General Assembly nor the public has fully evaluated.
The bill, which is authored by Rep. Mike Tobash (R., Schuylkill) and championed by Gov. Corbett, would affect only the pension benefits of new employees, not the benefits promised to retirees and current employees. The confusing proposal would do little to reduce our unfunded pension liability and nothing to address the next fiscal year's looming deficit. Yet, if passsed, it would weaken the retirement security of thousands of Pennsylvanians and harm our state's economy. The real "benefit" of the plan is that it would allow legislators to claim they "did something" about pensions.
The Corbett-Tobash proposal is neither simple nor efficient. It presents a "hybrid" pension model. The salary of a state employee, up to $50,000, would be covered by a traditional pension, while any salary above that would be covered by a privatized, 401(k)-style account.
Under the proposal, roughly half of all new public employees would suffer retirement cuts of 40 percent or more, and all but a handful would experience cuts of about 20 percent or more. The governor's own actuary suggests the possible savings are not worth the future reduction in pension payments.
While there is no consensus among independent actuaries regarding the savings this plan would produce, there is 100 percent agreement that it does nothing to address the current budget crisis. The lawmakers behind this bill agree. In a recent news conference, House Majority Leader Mike Turzai (R., Allegheny) called the pension debate a "separate issue" from the budget crisis.
Evidence suggests that in the long term, the proposed pension changes would do more harm than good. The cuts in future pensions for younger workers (money that would have fueled future spending in the commonwealth's economy) would far outweigh any savings for state budgets over the next 30 years.
Beyond the Tobash proposal, the governor generally hopes, yet again, to kick this fiscal can down the road. He embraces the shoddy accounting practice of allowing the state to make less than its fully required payments into the pension system. Unfortunately, failing to make full payments into the system year after year is much of what led to underfunding in the first place.
Public employee benefits are hardly the "golden parachute" that opponents describe. Pennsylvania's average public employee retiree earns a modest $24,000 per year. This is not a handout - this is deferred compensation for a career of service. (Public employees contribute up to 7.5 percent of every paycheck toward retirement - and have never missed a pension payment.)
Deep cuts to retirement security would also make it more difficult to attract talented, hardworking Pennsylvanians to teach our children, provide care at hospitals, and perform a thousand other crucial public-sector jobs.
Adoption of the proposed hybrid system would also move our public pension structure in the direction of the tragically flawed private pension system in America, a system that has left tens of millions of Americans woefully unprepared financially for retirement. Compared with defined-benefit plans, 401(k)-style plans generate roughly half as much per dollar invested in future payments to seniors (largely because of higher fees).
If we rob public workers of retirement security, we will all pay for it down the road. We will see less spending in our economy and more poor seniors. Finally, because defined-benefit plans are more, not less, efficient than defined-contribution (401[k]) plans, we will also ultimately see higher - not lower - tax burdens.
If lawmakers wish to address the budget dilemma productively, they must look at the real culprit behind the deficit - the billions of tax dollars given away every year to corporate interests.
According to the fiscal watchdog organization Good Jobs First, Pennsylvania loses $3.9 billion per year in corporate tax loopholes, subsidies, and offshore tax havens. That is far more than what is needed annually to fund our pension system (leaving revenue to better fund education).
Any plan to solve our budget crisis must start with holding corporations accountable rather than blaming public workers for a problem they did not create. That approach is what Pennsylvania's working families deserve.