New Castle News

Closer Look

November 11, 2013

Pension funding creates headache for lawmakers

HARRISBURG — While lawmakers struggle to come up with a plan to deal with skyrocketing pension costs, there is one option that has remained off-limits: Tinkering with benefits for the retirees.

Some of those now-collecting pension benefits are the very lawmakers who boosted benefits for themselves and other state employees while approving state budgets that underfunded the pension.

In 2001, the Legislature passed a law that changed the funding formula for pension benefits, increasing a multiplier used to determine pension benefits and making the law retroactive to the beginning of each employee’s government career. Then throughout the following decade, the state repeatedly underfunded its contributions to the pension system while depending on investment earnings to make up the difference.

In some cases, retired lawmakers are now collecting more in annual retirement payments than the $83,801 a year their successors are getting paid for serving in the Legislature.

Merle Phillips, R-Northumberland County, was in the state House for 30 years before his 2010 retirement. He is collecting $120,252 a year in pension benefits.

The watchdog group Rock the Capital identified two other lawmakers who were in office for the 2001 benefit boost who get even more in annual pension payments. The top pensioner: Frank Oliver, D-Philadelphia, who collects $286,118 a year.

House Republican caucus spokesman Stephen Miskin said current lawmakers have largely determined that trying to go after the benefits of retirees and existing employees is probably more trouble than it’s worth. Some lawmakers think it’s just wrong to try to undo benefits that were promised employees and retired employees.

Under this view, the 310,000 retirees in the state’s two main public pension systems made their contributions, it was the government that failed to pay its share.

The consensus is that any attempt to tinker with benefits of current employees or retirees would end up in court. The state needs pension relief as soon as possible, so most lawmakers are looking for a solution that can avoid a legal fight, Miskin said.

Without changes to the pension system, “the 2014 state budget and school district budgets will have to spend several hundred million more for pensions than this year,” said state Rep. Brad Roae, R-Crawford County.

Gov. Tom Corbett’s plan that included tinkering with benefits for existing employees is out, said state Rep. Fred Keller, R-Union County. State House leaders have told rank-and-file lawmakers that some form of pension reform bill should take place in November or December.

That’s key, because it is unlikely that the Legislature will want to tackle anything controversial in 2014, an election year, Roae said.

Any pension reform will likely focus on moving new employees into 401(k)-style plans.

But actuaries hired by the state pension systems have cautioned that shifting new employees could bring costs that undermine any benefit.

“There are no easy answers,” said Rep. Jaret Gibbons, D-Lawrence County.

Keller said critics have exaggerated the costs of moving workers from defined-benefit plans into the type of defined-contribution plans favored by the private sector.

Gibbons said that the state government shouldn’t really be looking to the private sector for guidance. It’s just as likely a private business would have declared bankruptcy to get out of its pension obligations. That’s not tactic any lawmaker in Harrisburg is eager to endorse.

But, it’s exactly the route civic leaders in Detroit are trying to take.

A trial is under way to determine if the city can declare bankruptcy. The Associated Press reports that as part of its bankruptcy strategy, Detroit is trying to get out from under a $3.5 billion unfunded liability for pensions.

The Corbett administration has put the price tag for Pennsylvania’s pension crisis at $47 billion.

(Email: jfinnerty@cnhi.com)

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