State House Sound Bites

Capitol reporter Mary Wilson covers Pennsylvania politics and issues at the Pennsylvania state capitol.

Union leader sees fighting words in Corbett administration's pension report

Written by Mary Wilson, Capitol Bureau Chief | Nov 27, 2012 10:22 PM
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Gov. Corbett has referred to the commonwealth's unfunded pension liability as a Pac-Man threatening to eat the state budget.

A new report detailing the causes and possible remedies of the state’s $41 billion unfunded pension liability is something like an opening salve in upcoming talks between the governor’s office and stakeholders. But if the head of the commonwealth’s largest public sector union is any indicator, the lines in the sand for this negotiation have already been drawn.

The report released by the governor’s Office of the Budget suggests possible reforms to the state’s pension systems could include switching future public employees from their current retirement plan to a 401(k)-style plan that locks in their contribution instead of their resulting benefit.

“That actually makes the problem worse because now employees are not contributing to the giant pool that is needed for funding, they have their individual accounts,” said David Fillman, director of AFSCME Council 13 union, adding that other states have tried the switch, only to switch back to defined-benefit plans when they find they need the contributions of employees going into that “giant pool.”

The report also suggests reducing the not-yet-earned benefits of current employees.

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“We do have the opportunity to at least look at the current employees, and not touch anything that has been obviously accrued to this point but look at how changes to this system can benefit an employee in the future but benefit the commonwealth in the long run,” said Jay Pagni, spokesman for the Office of the Budget, which indicates it has a way to make reducing future benefits “conform” to a court ruling that protects pension benefits as a contract between employer and employee.

Fillman said the state won’t be able to mess with current workers’ future benefits without breaching that contract.

The report offers other reforms – such as raising the retirement age and increasing employee contributions to the pension funds – but the options that have drawn the most discussion from lawmakers are reducing benefits for employees and changing their style of retirement plan.

If the state’s pension funds remain funded at the dangerously low share of less than 68 percent (the report indicates an 80 percent funding level is considered healthy), the Corbett administration warns the commonwealth’s required contribution to its state employee and school employee pension funds will blot out an increasingly large part of the overall budget. The same scenario is predicted in individual school districts, increasing the likelihood of higher property taxes.

In the face of the grim outlook offered by the budget office, Fillman said he wants to see some commitment to raise revenues to solve the pension funds’ problem (he suggested closing corporate tax loopholes). But that’s not among the options listed in The Keystone Pension Report.

Nor, said Pagni, are the various considerations printed meant to signal the Corbett administration’s plan for the commonwealth.

“All we’re doing is we’re saying, let’s look at all the options,” Pagni said. “It is not telegraphing that we will choose one option over the other.”

Published in State House Sound Bites

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