Corbett Plan Cuts Pensions By $12 Billion
HARRISBURG, Pa. (AP) – State and school employees would be forced to forgo nearly $12 billion worth in pension benefits over the next 30 years if Gov. Tom Corbett’s pension reform plan is approved, according to an administration analysis released Tuesday.
The itemized summary marked the first time the administration has publicly disclosed estimates of the savings and costs associated with the multifaceted pension reform plan Corbett unveiled in his budget address this month.
The Republican governor’s proposal to reduce future benefits for current employees is the centerpiece of his pension-reform initiative. But it faces an uphill fight in the Legislature and possibly the courts.
“We will maintain that doing so would be unconstitutional,” Wythe Keever of the Pennsylvania State Education Association, the state’s largest teachers’ union, said Tuesday.
Corbett’s plan to divert newly hired employees into a 401(k)-style plan would save taxpayers more than $2.5 billion through 2043, compared to the cost of enrolling them in the present, defined-benefit pension plan, according to the summary.
But those savings would be more than offset by proposed limits on the growth of taxpayers’ share of pension costs in the next few years, which would push more than $3 billion in new costs into later years.
Earlier Tuesday, Democratic state Treasurer Rob McCord and a labor-affiliated research group attacked the proposal 401(k)-style retirement plans.
McCord and economist Stephen Herzenberg of the Keystone Research Center said in a teleconference with reporters that the plan wouldn’t save taxpayers money but instead would cost more.
An administration spokesman countered that the critics ignored the potentially huge savings from the proposal to reduce future pension benefits for current employees. The biggest portion of that savings would come from a reduction in the “multiplier,” a percentage applied to an employee’s years of service and final average salary to calculate the pension.
“Their argument is based on only half the facts,” said state budget office spokesman Jay Pagni.
McCord and Herzenberg said the replacement of the pension plan would reduce the return on investments needed to provide benefits for the aging employees still enrolled in the current plan as fund managers seek less risky assets.
At the same time, the state’s 4 percent matching contribution for new hires automatically enrolled in the 401(k)-style 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.
On Wednesday, 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.