A day of reckoning is ahead for Pennsylvania's General Assembly when they finally confront a two-headed fiscal problem that is lust over the horizon.
Robert Gentzel, spokesperson for the SERS, says his fund has assets of approximately $24,4 billion and delivers an average annual pension of $22,700 to its retirees. At the end of 2009 the plan covered nearly 220,000 members comprised of 110,107 active members and 109,639 annuitants and beneficiaries.Nate Benefield, director of policy research with the Commonwealth Foundation, also says Harrisburg is facing the massive tax increases to fund the pensions partially because of massive lobbying that has taken place over the years. He charges Gov. Ed Rendell with accepting the reality of unfunded pension liability and then spreading the necessary payments over 30 years with a rising phase-in."All of these fiscal problems can be resolved, but it's important to understand that the state would not be in trouble if it had not put off proper funding and relied on the stock market for big investment returns," she says. "The courts have said changes to the level of current employee benefits would not be fair, Therefore, the General. Assembly can only negotiate with future employees for a new retirement deal."The imminent crisis involves preservation of the State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS). Harrisburg's grimace is being caused by the effects of several legislative acts approved during the last decade, large unfunded liabilities within the pensions, and poorly performing investment packages resulting from economic recessions.Evelyn Tatkovski, press secretary for the PSERS, explains that at the end of 2009 the organization had an investment portfolio of approximately $46.7 billion. This serves a membership of nearly 280,000 active school employees and 179,000 retirees, which includes a variety of individuals from cafeteria workers to school superintendents."Harrisburg deliberately spread misinformation and then hoped for good luck," claims Benefield. "The courts have ruled that the benefits cannot be reduced for current employees, but these pensions should be changed to defined contribution for new hires."John Sumansky, Ph.D., business department chairperson at Misericordia University, claims that Harrisburg played the pension game "fast and loose" while postponing the inevitable. Despite this charge, he remains optimistic that the General Assembly will find a way to fix the fiscal mess.The average age of the retirees, apart from those who are disabled or who accepted early-retirement, is 73. Benefit payments to all of these retirees now totals more than $2.2 billion a year.David Taylor, executive director of the Pennsylvania Manufacturers Association, expresses fears that the total package of fiscal problems soon to unfold before the General Assembly could, if improperly handled, plunge the state into a permanent recession or make necessary crippling tax increases.Gentzel explains that Pennsylvania has several different classes of employees. Retirement within these groups typically occurs at age 60 or after 35 years of service.Benefield further says the pension-related decisions in 2001 reached by the General Assembly looked good at that time, but have since been discredited because of the economic losses produced by the recession of 2001 to 2002, the 9/11 terrorist attacks, improper funding of the pensions, and the Great Recession."These unions are extremely powerful," says Taylor. "Their actions have been separate from the market forces the private sector must deal with, and our citizens have been picking up the tab for this difference."Taylor supports transitioning the retirement funds from a defined benefit status to a defined contribution. He also claims that a pension vote which took place in the General Assembly during 2001 was irresponsible.Sharon Ward, director of the Pennsylvania Budget and Policy Center, emphasizes that cool heads need to prevail in the search for solutions to the pension funding crisis. She acknowledges that the General Assembly did not make appropriate employer contributions to the funds over the years, and that it passed several acts which further drained the pension resources while relying too heavily on sizeable investment returns."The days of all defined benefit plans are numbered, and these pensions need to be changed to defined contribution," says Dr. Sumansky. "A formula will be worked out. The state cannot default on its financial responsibilities, and therefore a federal bailout to produce the neces sary funding is a real possibility."He charges that the public employee unions in Pennsylvania are a prime engine that has driven the behaviors of Harrisburg's legislators. This union power has been compounded by the fact that, unlike private sector jobs, the threat of a strike does not endanger the jobs of state workers and teachers.The average pension received by the individuals is $22,456 a year. Retirement can be chosen after 35 years of service, or 30 years of service and an age of 60.Massive lobbying"Overall compensation levels for these state retirees are way above private ley as, leaving the taxpayers on the hook," adds Taylor.The pension monster will soon leave the closet, because within two years the cost of operating the pension plans is expected to jump from approximately $1 billion a year to more than $3 billion annually. This jump may amount to three times the current financial burden now shouldered by every Pennsylvania resident.Cool heads"It's important to understand that the pensions are a financial debt owed by Pennsylvania to the members of the pension fund," says Gentzel."The average age at retirement from 1952 to early 2009 was 59.04 years," explains Tatkovski. "Health care is not routinely covered, although a voluntary health option is available with a premium assist component."Ward emphasizes that a gradual increase in the level of pension funding will not fix the current shortfall. Nor can the solution be achieved by simply changing the retirement status of new employees.
"The days of all defined benefit plans are numbered, and these pensions need to be changed to defined contribution," says Dr. Sumansky. "A formula will be worked out. The state cannot default on its financial responsibilities, and therefore a federal bailout to produce the neces sary funding is a real possibility."
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