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RICHARD C. ROWLAND: Stop bait-switch pension proposal

on August 25, 2013 1:20 AM

Having previously presided over the Bureau of Consumer Protection as Pennsylvania’s attorney general, one would think that Gov. Tom Corbett would recognize and certainly not engage in efforts to promote a bait and switch on Pennsylvania’s taxpayers. His latest public employees “reform” plan, however, is just that — a bait and switch that the Pennsylvania General Assembly must expose and reject when it returns to session next month.

For how many years now has the Legislature been holding hearings and racking up per diems to talk about the problems with the retirement systems? I think we all understand the problems by now. The state and public school districts have amassed a huge, $47 billion debt to the public employee retirement systems. The state and districts cannot afford the increases in contributions to the systems that the Legislature mandated in 2010, without raising taxes or cutting other necessary programs.

Gov. Corbett has been most vocal and quite effective in identifying the problems. He baited all of us with his estimates of what the unfunded liability translates to per household. He hooked us, when he described the legislatively mandated employer contribution rate increases as a “tapeworm” that threatens to gobble up most of the revenue surpluses expected in the state and local school budgets. But is Gov. Corbett really advocating solutions to the pension problems he articulated, or is he proposing a switch?

He is proposing a switch, a switch from the defined benefit pension plans that worked so well for nearly 100 years before Gov. Ridge and the legislators in 2001 messed them up by enacting a poorly disguised pension grab for themselves and, at the same time, prohibiting the retirement systems from properly increasing the employer contributions needed for investment to fund the promised benefits when the employees retire. He is proposing a switch to a plan that will cost the taxpayers much more and provide future employees much lower retirement benefits. Bear in mind, the average pension for current state and school retirees is only $24,500 per year.

The truth is that the switch advocated by Gov. Corbett will do nothing to solve the problems with the existing retirement systems, according to the actuaries employed by both retirement systems, as well as by the actuary employed by the bipartisan Public Employee Retirement Commission (PERC). In fact, the proposal advocated by the governor in SB 922 and HB 1352 will increase the amounts that state and local taxpayers contribute to provide retirement benefits for school employees hired in the future.

As far as the existing $47 billion debt in the existing systems goes, the systems’ actuaries estimate that closing the systems will saddle Pennsylvania taxpayers with an additional $42 billion cost. Does this sound like a solution to the problems Gov. Corbett so effectively articulated?

To no one’s surprise, the governor and the actuarial firm he hired to help promote his proposal disagree with the assessments made by the other three firms employed by the retirement systems and by PERC. The conclusions of Gov. Corbett’s actuary, Milliman Associates, are similarly at odds with the conclusions reached by at least a dozen other actuarial firms across the country who have analyzed the impact of closing defined benefit pension plans and establishing defined contribution [401(k)] plans for new employees in their client states.

When the Legislature returns in September, Gov. Corbett will push the legislative leaders from his party to accept his word and the conclusions of his actuary and to ignore all others. He will push the leaders to pass either SB 922 or HB 1352 quickly, as he sought to do before the legislators recessed in June, before anyone really looks at the numbers or considers the implications of the proposal for Pennsylvania’s taxpayers and the more than 750,000 public employees and retirees. He needs a legislative victory to enhance his re-election effort, most would agree.

Whether employed/retired from the public or private sectors, all citizens and taxpayers of this commonwealth need to demand that the General Assembly publicly scrutinize Gov. Corbett’s proposal and resist pressure to pass it for purely political reasons. The legislators have known for many years that the debt to the retirement systems was growing and that the state and school districts contributions could not remain suppressed forever. They spent numerous hours in public hearings, over many years, at great expense to all of us, talking about the problem. Publicly, they need to spend a few hours carefully examining and discussing all proposed solutions.

If there is a difference in opinion among the actuaries, call all of them into public hearings and ask them to justify their reports. We urge our legislators not to repeat the mistake they or their predecessors made in 2001, when the legislators failed to hold any public hearings on what would become ACT 9 and rushed to pass that law before anyone had an opportunity to read the actuarial report.

Legislators must not enact major changes to the retirement systems based upon the word of any governor or any legislative leader. Remember the words of the former, and now imprisoned, House Majority Leader John Perzel when the legislators passed Act 9 of 2001? He said: “This will not cost the taxpayers a dime for at least 10 years.” Have the current legislators learned anything from past mistakes?

Retired public employees have nothing to fear as nothing is being proposed that will affect their benefits, claims Gov. Corbett and the legislators promoting passage of SB 922 and HB 1352. We beg to differ. We are taxpayers, too, and knowledgeable enough to know that all taxpayers should fear what is being proposed in those bills.

Richard C. Rowland is executive director of the Pennsylvania Association of School Retirees.

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