A deal is a deal on workers’ pensions

November 28, 2012

That Pennsylvania has a pension problem that is the equivalent of a ticking time bomb is not news. What Gov. Tom Corbett wants to do about it certainly is.

Many have suggested that the state, in an effort to trim future costs that are spiraling out of control, revise the pension systems for public school teachers and state employees so that newly hired workers would not receive the type of defined-benefit pensions enjoyed by current workers, but instead would contribute to 401(k) or similar programs.

Since that’s what the vast majority of workers in the private sector are receiving these days, we see no reason why teachers and state workers should expect anything different. But the governor loses our support when he suggests going further and tearing up existing agreements with current teachers and state workers.

There is no doubt that the current situation is dire and untenable.

An Associated Press story that ran on the front page of this paper Tuesday noted that the pensions of current public workers represent an unfunded liability of more than $41 billion. A new report on the teachers’ and state employees’ pension funds warned of “higher taxes, program cuts, lower business growth and steeper borrowing costs,” the AP reported.

The pension report, authored by the governor’s budget office, said higher taxes should not be considered as an answer to the problem, but it’s difficult to imagine the issues being resolved without an influx of new revenue. Some of that might come from Corbett’s plans to privatize the state liquor store system and the state lottery, but that money will go only so far, and the pension issue is not the only concern facing the state, which also, for example, has to deal with rapidly crumbling highways and bridges across the commonwealth.

The report also raised the possibility that the state could rely on “prior court determinations regarding deferred compensation” as a way to revisit benefits promised to current workers and retirees. It provided no details about those “court determinations,” but current case law in the state would suggest that’s a steep legal hill to climb.

The current problem was created in large part more than a decade ago when then-Gov. Tom Ridge, with bipartisan support in the Legislature, signed a measure greatly improving the pensions of public workers, under the assumption that the huge investment gains being reaped by the state would continue unabated and finance the additional pension burdens. Then the markets crashed, and the “easy money” disappeared. Since then, the Legislature has kicked the can down the road rather than make the difficult decisions necessary to confront the problem. In the meantime, some retirees are reaping – or will be due – annual pensions that can run into six figures.

Many local school districts also failed to keep up with their pensions, and the budget office report paints a grim picture of their futures.

“Increasing pension ... obligations will claim a greater share of school district budgets, crowding out funding for education, whether it is direct classroom instruction, sports, facilities and maintenance, and ultimately put pressure on districts to increase property taxes,” it said.

The options are few, and unpleasant, but taking away benefits legally earned by current workers is not the proper course. The state made a deal with teachers and state employees in 2001 that it is morally – and, most likely, legally – bound to keep. The governor and the Legislature should be moving on to other potential solutions.



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