Governor's Pension Plan Has Serious Case of 'Pension Deficit Disorder'

Governor Tom Corbett's plan to radically restructure public pensions will increase Pennsylvania's pension debt by nearly $5 billion between now and 2019. How does it worsen Pennsylvania's public pension debt? By lowering state and school district contributions to pensions during that time period.

Even the Governor recognizes that short-sighted delays in employer pension contributions is a big part of how Pennsylvania ran up its current pension debt. In fact, the fourth in our series of "Keystone Pension Primers," released this week, presents extensive quotes from the Governor's own pension report, criticizing past failures to make needed pension contributions. And then he comes forward with a plan that makes the same mistake? As Ronald Reagan might say, "there you go again."

In testimony before the Pennsylvania House State Government this week, I also reviewed our earlier pension primers highlighting ways the Governor’s proposal will increase the state's pension debt and the cost of pensions for new employees. 

As a result of the different ways the Governor’s pension proposal increases pension costs, you might say his plan has a serious case of "pension deficit disorder" — Pennsylvania Treasurer Rob McCord has estimated that the Governor’s plan could increase Pennsylvania’s pension debt by $25 billion by 2016

Our latest pension primer also explains that over the crucial period from 2001 to 2009, when Pennsylvania began to run up a large pension debt, public employees contributed nearly twice as much to statewide pension funds as employers. Nationally, the ratio of employee to employer contributions was flipped from that in Pennsylvania — with public employers contributing nearly twice as much funding to state pension plans as employees, according to U.S. Census data.

Altogether, the ratio of employee-to-employer pension contributions in Pennsylvania from 2001 to 2009 equaled nearly 3.5 times that of the rest of the country. Take a second to fully process this dramatic number. It drives home just how much Pennsylvania public employees have contributed to their pensions every paycheck — and just how little the state and school districts contributed.

If Pennsylvania and its school districts had contributed enough to bring the ratio of employee-to-employer contributions down to the national average (i.e., to move the ratio from nearly two to about one half), the state and school employee pension funds would now have upwards of $20 billion more, counting investment returns from higher contributions. That would slash Pennsylvania's pension debt by more than half.

Further delays in employer contributions now would amount to “kicking the proverbial can down the road" — to borrow a phrase used by the Governor to describe his own proposal to cut pension contributions in the next six years!

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