HARRISBURG – Pennsylvania’s state treasurer and a labor-affiliated research group Tuesday criticized Republican Gov. Tom Corbett’s plan to cut costs by diverting newly hired state and school employees into 401(k)-style retirement plans.
Democratic Treasurer Rob McCord and economist Stephen Herzenberg of the Keystone Research Center said the proposal wouldn’t save money but would instead cost taxpayers more. It’s a key provision in Corbett’s overhaul of the state’s two largest public pension plans.
An administration spokesman countered that the critics ignored Corbett’s companion proposal to reduce future pension benefits for employees in the current, defined-benefit plan to save an estimated $11.5 billion over 30 years.
“Their argument is based on only half the facts,” said state budget office spokesman Jay Pagni.
That proposal, however, is fraught with legal and political challenges, ensuring it faces a steep uphill battle in the Legislature and possibly the courts.
In a teleconference with reporters, McCord and Herzenberg said the introduction of the new plan would reduce the return on investments needed to provide benefits for the aging employees enrolled in the current plan as fund managers seek less risky assets.
At the same time, the cost of the state’s 4 percent matching contribution for new hires automatically enrolled in the new pension plan will come from existing pension fund assets, further increasing the cost to taxpayers, they said.
“The governor’s proposal will dig a deeper pension hole with taxpayers on the hook,” Herzenberg said.
McCord, who is considered a potential challenger to Corbett’s re-election bid in 2014, voiced concern about the governor’s plan to initially reduce the taxpayers’ share of pension costs and limit annual increases for several years.
McCord said it would add $5 billion to what is currently a $41 billion unfunded liability in the Public School Employees’ Retirement System and the State Employees’ Retirement System, which together include more than 800,000 active and retired members.
“It’s basically a planned tax hike on anybody who plans on living in Pennsylvania in 2019 and beyond,” he said, citing the year Corbett would complete a potential second term.
Corbett’s proposal to reduce future benefits of current employees is all but certain to prompt a legal challenge from public employee unions even if it passes the Legislsature. Many Democratic lawmakers oppose it, and it has received a cool reception from the leaders of the Legislature’s GOP majority.
Today, representatives of the two major pension funds are scheduled to appear before legislative committees scrutinizing the governor’s state budget plan for the fiscal year starting July 1.