Pension expert offers five-step plan for reform
SCRANTON - Legislative proposals to reform Pennsylvania's severely underfunded pension system would not provide a long-term fix, but only "punt" costs to future generations, according to a pension expert.
Richard Dreyfuss, an actuary and senior fellow with the conservative Commonwealth Foundation, a Harrisburg think tank that has called for pension reform, met Wednesday with the editorial board of the Times-Tribune, a sister paper of The News-Item in the Times-Shamrock Communications family.
His five-step plan for pension reform includes:
- Instead of existing "defined benefit plans" that provide guaranteed payments to retirees regardless of the plans' investment performances, establish "defined contribution plans" similar to 401(k) plans in the private sector. Defined benefit plans are "chronically overpromised and underfunded" and assume overly optimistic 7.5 percent annual returns on investments, he said. One legislative proposal calls for "hybrid" defined benefit plans, but Dreyfuss contends that would not resolve the underlying "toxic" political issues of current defined benefit plans and would only "punt it (the problem) down the road."
- Continue prohibiting pension obligation bonds outlawed in 2010. Another legislative proposal calls for borrowing $9 billion in pension obligation bonds to refinance a portion of the nearly $50 billion long-term debt for the State Employees Retirement System and Public School Employees Retirement System. Dreyfuss strongly opposes such pension loans, which he says transfer debt from one source to another and gives further incentives to underfund pensions.
"We have not put in the proper (pension contribution) amounts and there's really no appetite to do so" in Harrisburg, he said.
- Adopt funding reforms consistent with Government Accounting Standards Board requirements requiring unfunded liabilities to appear on employers' balance sheets.
- Modify "unearned" pension benefits by redefining early and normal retirement benefits, increasing member contributions, eliminating annual cost of living adjustments and deferred benefits, and revising other post-employment benefits such as retiree health care.
- Consider other reforms only after the prior four steps are achieved, preferably without increasing taxes or through new borrowing.
Dreyfuss also is an associate of the Pennsylvania Economy League, which is an Act 47 distressed municipalities coordinator for the state. He also spoke Wednesday at Genetti Hotel in Wilkes-Barre at a PEL Northeast Issues Forum titled "Pennsylvania's Public Pension Crisis: Causes, Costs, Challenges and Solutions," and co-sponsored by the Greater Wilkes-Barre Chamber of Business and Industry.
"It's very easy to look at this, as some do, as 'the taxpayer against the union,' but my point is that the pension system is an institutional problem," Dreyfuss said. "There's a lot of people who invest money, a lot of people who do consulting for this, and there's a lot of elected officials and judiciary who are in these same pension systems. The union is part of the thing; we fully acknowledge that. But that's not the full dimension of what we're talking about here."