Governor Tom Corbetts administration touted pension reforms as one of the highlights of his new Pennsylvania budgets. Bit his plan has the potential to balloon the already $41 billion unfunded liability by applying new artificial collars to how much the state must pay into the system. But those collars allow Corbett to rehabitate his miserly reputation prior to his bid for reelection.
The currents crisis in pension funding is because the state failed to pay its share of pension costs, creating the unfunded liability. It is important now because the artificial collars are slowly being lifted to pay off the debt in an orderly manner outlined in Act120 in 2010. This year the state pays 11.5% of payroll for SERS and 12.4% to PSERS. Next year those payments will rise to 16% and 16.75% of payroll and the rates will continue to rise until payments peak at 28% of payroll in 2019, at which time the rates will stay in place for several years before beginning to decline.
He wants to put state abd school employees into a seperate retirement system that resembles a private sector 401k. He also wants to lower the multiplier used to calculate employee pensions from 2.5% to 2.0% to keep the Public School Employees Retirement System and State Employees Retirement System viable. He is also trying to limit the amount by which the commonwealth employer contributions can be increased.
In 2000 PSERS was funded at 123.8%, a decade later it was at 69.2%. The governor says the decline can only be fixed by abadoning the defined-benefit plan and replacing it with a 401k for new employees. This puts the investment risk on the emloyee while more than doubling the needed lifetime employee contributions. More than 70% of the PSERS value comes from return on investment. The networth of the pension was hit by $15 billiin during the recession.
Some are questioning the constitutionality of this because of it breaking a contracts. People are also worried about balancing a budget on something that might be thrown out in court. I further question why the highest paid governor in the country doesnt take a pay cut as a show of good will. We are also in the top 10 highest paid legislatures in the country. If either took a pay cut it would help towards the budget and a show of goid will. But they are protected by the Pa. Constitution where the pension plan is protected by the U.S. Constitution.
Why didnt Corbett try doing any of this in previous budgets, just the one before reelection. I truly question thus mans motives because if he wanted to straighten out our budget Pa. would be taxing Natural Gas Drillers and using the severance tax with them. That alone would create enough money to avoid education cuts. But I think we will find out in the future what exactly is happening there.
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