PENSIONS: State Retirement Changes Could Drag Corbett Down

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BY TONY WEST/ The Commonwealth of Pennsylvania has a few problems with its public pension plans. To be precise, 827,773 of them.

That is the number of members in the State Employees’ Retirement System and the Public School Employees’ Retirement System combined, according to a report released by State Treasurer Rob McCord on Jan. 31.

Retirees number 308,167; paying into these two systems are 390,565 current employees.

These plans are hurting because not enough money has been put into them to meet expected future legal obligations. Gov. Tom Corbett vowed to tackle state pension woes in the budget he proposed this week.

Politically, state pension plans can be a live rail for elected officials who wish to reform them. It’s not hard to see why: if one out of five households depends on them for survival in old age, they form a powerful voting bloc that is leery of tinkering with them.

Tinker we must, however. McCord’s report states the actuarial funded ratio of SERS ended the year 2011 at 58.6% while PSERS’s ratio was 66.4% at the end of its fiscal year on Jun. 30, 2012. These ratios measure projected future liabilities against  future values of the assets held by these funds. Short form: The money won’t be there when it’s some people’s turn to get theirs.

But there was a time when state pension plans were responsibly funded. From 1996 through 2003, their funded ratios stood at 100% or more.

The seeds of rot began earlier, though. Starting in 1994, the Commonwealth – under newly elected Republican Gov. Tom Ridge – slashed its contributions to fund SERS. (The employees’ contributions remained the same.) Starting in Ridge’s second term, in 1999, PSERS began to get the same treatment.

“The practice of contributing less than was required to meet future obligations during those periods contributed $3.5 billion and $2.25 billion to the deficits at SERS and PSERS, respectively,” McCord’s report concluded.

What lifestyle do these pensions offer? A modest one. The average annual annuity for a SERS retiree is $25,083; PSERS pensioners average $24,122 yearly.

Public pensions are under pressure across the nation. Pennsylvania is not in great shape. But other states are far worse. Ohio’s public-pension liabilities add up to 36% of that state’s gross domestic product. New Jerseyans owe 29% of their GDP to public pensioners.

But unfunded pension plans are not an act of God, beyond local control. Citing a study by the Pew Center on the States, McCord’s report notes that neighboring New York state’s liabilities are 94% funded.

Pennsylvania leads the nation in municipal pension plans – at least in sheer numbers. McCord’s report says there are 3,196 local-government defined benefit plans in the United States. Of those, 1,422, or 44%, are in Pennsylvania. Most of these locally sourced plans are tiny; one-third of them have three or fewer active members.

Any effort Corbett makes to rein in state pension costs will face unusual political constraints. While his Republicans enjoy majorities in both houses of the General Assembly, their margins are tight. And while Republicans usually make do without much electoral support by state employees, school employees are a different constituency  to which many Republican legislators listen.

Even at the executive level, Corbett is in an unprecedented pickle. All three state row offices – Attorney General, Auditor General and Treasurer – are held by Democrats now. Treasurer McCord and Auditor General Gene DePasquale both hold independent number-crunching positions. If any of Corbett’s proposals look shaky to them, these officials will not hesitate to knock them down.

Further complicating the knot is that pension obligations are legal obligations. If any reform idea of Corbett’s is legally dubious, Attorney General Kathleen Kane has the power to challenge it. During her successful campaign in 2012, Kane vowed to investigate Corbett for other causes. She will not flinch from undermining his Administration on pensions either.

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