Patriot News OpEd – Legislature Must Act on Pension Reform this Fall

By John Lawrence

Over the past few months, the nation has witnessed one of our greatest cities, Detroit, slide into an ever-growing financial morass.

This one-time industrial and cultural leader has devolved from a shining beacon of capitalism to a shadow of its former self. Decades of government ineptitude and poor financial planning resulted in gross municipal over-borrowing and a crushing debt load, leaving the beleaguered citizens of the city to pick up the pieces while facing an uncertain future.

How did this happen? Why didn’t the Detroit City Council stand up 10 or 20 years ago and try to turn around the city’s finances? While there are plenty of reasons for Detroit’s current fiscal woes, one of the biggest factors is this: Too many promises were made to too many people. Too many pensions for too many government workers, and not enough funding from a city that counted on tomorrow’s taxpayer to pay for all of the promises.

Here in Pennsylvania, we also face a financial challenge.

But Pennsylvania is not Detroit- not yet at least. But at $49 billion, Pennsylvania’s unfunded pension obligations to state workers and teachers are very real, and no one but the taxpayer is available to pay the bill. If we do nothing, in 10 or 20 years tomorrow’s taxpayer will look back on our era and say “Why didn’t anyone see it coming?”

Let’s take a step back – How did the state get to the point where the state workers’ and teachers’ pension systems are $49 billion underfunded? To start, it’s important to know how state pensions are supposed to be funded.

Think of it as a three-legged stool. A teacher’s pension is funded from three sources: the teacher, school district, and state. Over the years, only one leg of the stool has consistently contributed every dime required to the pension funds – teacher’s paycheck deductions. Often unfairly maligned in debates on the pension plans, teachers and state workers have always made their full contribution.

But from 2001-10, both the state and the school districts paid only pennies on the dollar into the pension systems. Coupled with steep declines in the stock market during this time, today the state pension systems face an enormous gap between what has been promised to retirees, and the money available to pay benefits.

Gov. Tom Corbett deserves credit for fully funding the state’s obligations to the pension systems during the three years he has been in office.

In fact, Corbett has put almost as much into the pension systems in three years as former Gov. Ed Rendell did in eight years. While we can point our fingers back at Rendell for underfunding pensions, it doesn’t help solve the problem.

So what should we do now? To start, the state needs to continue to make good on payments into the pension systems. These escalating costs must come from existing state revenues, as the forgotten taxpayer certainly can’t afford any more. And all stakeholders need to come together for a realistic look at the situation, setting aside partisan labels to develop a workable solution.
But what about the future? What about trying to put a plan in place so that we won’t be in the same spot 10 or 20 years from now?

To use an analogy, when you find yourself in a deep hole and you want to get out, the first thing to do is put down the shovel. We cannot afford to continue adding new government employees and teachers into the state pension systems.

Instead, new employees should be placed into a 401(k)-style defined-contribution pension plan, where both employee and employer contribute up front during the individual’s working years. Such a plan would put employees in charge of their own retirement, and eliminate the worry that the state will repeat past failures when it comes to properly funding pension plans.

This is not a new idea. Many companies have moved to 401(k) retirement plans for employees, and some states have followed suit. Ironically, the state of Michigan instituted a defined contribution plan for all new employees in 1997, even as Detroit’s city leaders did little to address their own approaching financial tsunami.

Bills have been introduced in the House and Senate to move new teachers and state workers to a defined contribution pension plan.

Powerful special interests have spoken out against these common-sense proposals, yet have offered no alternative other than to keep the status quo. While I am not one to argue for change simply for the sake of change, it is abundantly clear that left unaltered, the status quo will eventually bankrupt the Pennsylvania taxpayer. Anyone who says otherwise is lying to you, plain and simple.

The Legislature cannot ignore this issue. Now is time to move forward. If we fail to act, in 20 years our children will ask us, “Why didn’t anyone see this coming?”

State Rep. John Lawrence, a Republican, represents the 13th state House District in Chester County. He declined participation in the state pension system.


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