Why We Must Fix Pennsylvania’s Broken Pension System

Is it as maddening to you as it is to me when government seems to make the same mistake over and over again but never learns? It can happen again in Pennsylvania if we don’t make needed changes to our public pension system.

I have introduced a commonsense plan in the General Assembly that will be fair to retirees, employees and, most importantly, taxpayers.

Pennsylvania’s pension system is broken for a variety of reasons. Those reasons include the economic downturn, retroactive retirement enhancements for current employees, recurring failures to make the necessary yearly payments into the funds, and rosy assumptions.

How we got here though is less important than where it has left us, the taxpayers of Pennsylvania.

Today, our public pension system has an unfunded liability (or massive debt) of at least $47 billion. We are paying out more than we are taking in.

The result? Right now governments at every level — local school boards and statewide — are being forced to shovel your tax dollars into the funds in record amounts. This is causing serious concerns for elected officials in every level of government. It is affecting every other line item in the state’s annual budget, from education funding, to funding for people with intellectual disabilities, law enforcement, environmental protection and programs against domestic violence.

The question of how we solve this funding problem is, however, separate and distinct from whether we will continue to embrace the system that has brought us to this point.

While almost everyone working in the private sector, and in some local and state governments around the country, now join defined contribution or 401(k)-type plans, that does not happen with our new government employees. Each and every time we add a new person to our failing pension system, we are adding to the burden the system faces.

That is unacceptable and needs to change.

My legislation would place all new hires in a 401(a) plan. The design is simple. An employee would be required to sock away 4 percent of his pay, which will also be matched by the state each year. The beauty of these plans for the taxpayer is that 10 or 20 years from now we won’t have another bill for payment on the “unfunded liability.” The value of 401(a) plans is that they can be more easily planned for each year in the budget.

Long ago the private sector shifted to this type of retirement benefit, and it is certainly time for the public sector to follow. Some states have either adopted a 401(a) plan entirely for new hires or created hybrids, which have a small pension and then a 401(a) above it.

I reject the idea that adding a 401(a) plan for new hires costs more. How could it? If it did, the private sector would never have moved en masse to similar plans. Other states and localities that closed their plans have not seen increased costs. Several actuaries and retirement watchdogs have rejected this argument themselves, including the Pew Center for the States and The Arnold Foundation.

Further, my plan includes an option for current employees to voluntarily switch. This can become a tool in the hands of the various departments of the state and the school systems to structure employee benefit packages in such a way as to encourage current employees to switch to the 401(a). The employees benefit from a 401(a) because it gives them control over the accounts, and they can take it with them as they change employment throughout their careers.

While there will be current employees who switch, and that will likely help bring down the unfunded liability, the unfunded liability and adding new people to the pension system are separate matters.

To address the unfunded liability will take a great deal of money through budget reductions — both state and school district budgets — by tax increases on an already burdened taxpayer or by mandatory changes to current employees. These things, or a combination of them all, may be done in some measure over the coming months and years, but that will not change anything for the future.

Absent closure of the current system, the mistakes of the past will be repeated over and over again to the detriment of future generations of Pennsylvanians.

— State Rep. Warren Kampf is a Republican representing Montgomery and Chester Counties.

The views expressed here are those of the author and not necessarily those of the Susquehanna Valley Center.

Nothing contained here should be considered as an attempt to aid or hinder the passage of any legislation.