By State Rep. Sam Rohrer
I was one of only six members of the Pennsylvania House of Representatives to vote against a bill that would increase the cost to taxpayers paying for retirement benefits for current state employees, teachers and legislators in the state’s two pension systems.
House Bill 2497 is like slapping a fresh coat of paint on a building with a crumbling foundation. The changes in this legislation would do very little to improve the existing structural deficiencies in the state’s pension systems.
The bill implements a series of changes to the state’s two major retirement systems — the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS).
The measure would achieve a short-term reduction in contributions by refinancing current pension liabilities over a 30-year period and in reality deferring costs.
This is a case study in generational theft. The Rendell administration skimped in recent years on its obligation to fully fund the pension systems and now that responsibility will be passed on to future generations. This bill just puts the burdens of today on the taxpayers of tomorrow. It makes some responsible changes for newly hired workers, but adds billions of dollars in costs to future taxpayers who will be saddled with greater problems than we now have.
The pension change was likely motivated by a desire to use any short-term savings to pay for additional state government spending.
For years, politicians in Washington, D.C., have been raiding the Social Security system to pay for pet projects. This bill does something similar on the state level. By pushing off pension costs to future years, the General Assembly just frees up more dollars to spend today. There are no substantive savings for taxpayers in this bill. If there were, taxpayers should expect to see the overall costs of state government go down. This is just a numbers game where a near-term decision will underfund the pensions so overspending can occur in another area.
The changes in the pension benefits systems fall far short of bringing them in line with similar private sector retirement plans. The bill maintains the existing defined benefit system, where state employees, school teachers and legislators are guaranteed certain benefits. Under this system, if pension investments fail to meet their goals, taxpayers are on the hook to make up the difference.
Approximately two-thirds of private employers have shifted to defined contribution plans, where the business will match an employee’s contribution to a retirement account. Under this system, the employee bears the burden of risk associated with fluctuations in investment performance.
The decision to maintain the defined benefit pension systems will wind up costing taxpayers significantly more than a defined contribution system, especially if pension system investments underperform in the years ahead.
Many Pennsylvania retirees and workers lost huge chunks of their pensions in the economic meltdown. Yet this bill tells them that, while their own retirement benefits fluctuate, they must guarantee the benefits of taxpayer-paid workers. This legislation essentially says there is one set of rules for taxpayers for their own retirement accounts and a completely different set of rules for those who work for government.
Some of the beneficial changes in the pension bill included:
Doubling the amount of time from five years to 10 years that an employee must work before becoming “vested” – or guaranteed benefits – in the pension plans.
Reducing the multiplier used to calculate pension benefits from 2.5 percent to 2 percent.
Increasing the minimum retirement age for PSERS members to 65 with three years of service instead of the current minimum of 62 with one year of service.
Increase from 50 to 55 the retirement age for representatives and senators who take office for the first time next year.
Eliminates the option for retirees to take a lump-sum payment upon retirement.
All of the changes would only apply to new state workers, teachers and lawmakers who are hired or take office next year. The benefits and requirements of current pension plan participants would not change.
While these changes are a small step in the right direction, they are overridden by the sheer magnitude of the interest costs alone due to the re-amortization over 30 years, all of which will be paid by future taxpayers. In addition, these changes do not protect taxpayers by bringing public pension benefits in line with equivalent private sector retirement plans.
Taxpayers are tired of living by one set of rules while government lives by another. It appears Harrisburg still hasn’t heard that important message.
The bill now heads to the Senate for consideration.
Mr. Rohrer , a Republican, has represented Berks County’s 128th District 128th District in the Pennsylvania House since 1993. He will retire from the Legislature at the end of the year. This column This column ran in the Mercury serving Pottstown, Pa.