Pension crisis begins move to front burner
The ways in which escalating public pension costs are impacting state programs and services is spelled out by a top official of the Corbett administration.
Budget Secretary Charles Zogby described how a spike in state (or employer) contributions to pension systems for state employees and public school employees is crowding out funding for other programs in written testimony provided last week to the state Public Employee Retirement Commission. The commission is holding public hearings this month on pension reform and funding issues.
Gov. Tom Corbett has indicated that pension reform will be a front-burner issue next year. The governor plans to offer a specific proposal as part of the fiscal 2013-14 state budget proposal, Zogby said.
Dollars are driving this issue.
The state contribution to the Public School Employees' Retirement System (PSERS) will be $1.2 billion in fiscal 2013-14, a $374 million or 44 percent increase from the $856 million contribution this year, Zogby said.
The state contribution to the State Employees' Retirement System (SERS) will be $971 million, a $294 million or 43 percent increase from the $677 million contribution this year.
These increases will come on top of steep increases in the state contribution amount this year, $256 million or 43 percent in the case of PSERS and $209 million or 45 percent for SERS, he added.
Spending in the current state budget has increased by $370 million or 1.4 percent from the previous year and the increases in pension contributions account for most of it, said Zogby. The other spending increases are for debt service on capital projects and additional funds for fiscally distressed school districts and municipalities.
"These increased pension costs are crowding out funds within agency budgets and challenging commonwealth agencies to carry out their core missions," Zogby said. "Every dollar expended on increasing pension contributions takes a dollar away from highway and bridge repair, upkeep of our state parks, the state police and other vital services provided by state government."
The spike in contributions is charted under a 2010 state law to address the underfunding of the two pension systems through a combination of poor investment returns following the 2008 stock market crash, underfunding of the employer contribution in previous years, an expansion of pension benefits in 2001 and a wave of retirements.
Zogby believes the only option that can be considered off the table is to "do nothing."
The proposals surfacing so far call for switching new hires for state government and school districts to a defined contribution pension plan similar to private sector 401(k) plans and away from the traditional defined-benefit plan.
Another view of the pension problem is offered by Stephen Herzenberg, Ph.D., executive director of the Keystone Research Center, a Harrisburg think tank with labor ties.
"The most serious crisis, from our perspective, is the erosion of retirement security in the private sector," said Herzenberg. Moving away from defined-benefit plans in the public sector will only aggravate the problem, he added.
Herzenberg suggests raising revenue for pension costs by taxing financial service transactions and unearned income.
(Robert Swift is Harrisburg bureau chief for Times-Shamrock Communications newspapers. Email: email@example.com.)