Share This Page

Corbett turns focus to state pension predicament

| Sunday, May 6, 2012, 8:14 p.m.

HARRISBURG — Gov. Tom Corbett has added a new item to his agenda: the increasing costs of pensions covering more than 800,000 retired and current state workers and public school employees.

Aides are analyzing options to deal with the spiraling pension costs as the Republican governor surveys what could be an entire first term — and perhaps second term, too — of difficult budget-making.

"It's a big issue," Corbett said. "I've been going to school. There are legal issues that we are taking a look, at and nothing has (been) presented to me just yet, but there are approaches that may be available to be taken."

Any action won't happen until at least next year, Corbett said. But even then, legal analysts, union leaders and retirement system officials said they know of little that can be done to moderate the cost spike.

For one thing, reducing the benefits of retired or already hired employees — even requiring that they switch into a 401(k)-style plan — runs into a principle of state constitutional law. Plus, a November 2010 law that reduced benefits for newly hired state and school employees also spread the unfunded accrued liability further into the future.

That leaves little else that can be deferred.

Benefits for future employees could be reduced again, but that would have little effect on immediate costs.

Switching future employees into 401(k)-style plans — which Corbett supports — might save money further down the road. But there's no guarantee of that, said Keith Brainard, the research director for the National Association of State Retirement Administrators in Essex, Conn.

Finding a dedicated revenue stream or selling assets such as the state liquor store system could help, but it's inevitable that the state's costs must rise, said Jeffrey Clay, the executive director of the Public School Employees' Retirement System.

"There's no silver bullet, there's no magic potion, there's no magic wand that's going to solve this problem," Clay said.

Cost-of-living adjustments, a generous pension enhancement in 2001, investment losses during the recession and the dot-com bubble, two deferments and years of underfunding by the state have led to this point. For years, retirement system officials and pension specialists within the executive and legislative branches have warned that the state faced tough choices in 2012.

Meanwhile, many employees have paid more than 6 percent of their salaries into the system, and labor unions are wary of employees being scapegoated.

As it stands, the $1.1 billion that the state is paying for pension obligations this year — about 4 percent of the $27.2 billion budget — is scheduled to rise to $1.6 billion in the fiscal year beginning July 1. When Corbett campaigns for a second term as governor in 2014, he could be defending a budget that pays $3.1 billion into retirement systems.

The landscape is grimmer for the candidate who wins the 2014 gubernatorial election: Contributions are scheduled to rise to $4.3 billion just two years later.

"I equate that to a Pac-Man or a tapeworm eating up the budget," Corbett said. "I do not see the economy growing at that kind of rate — and even if it did, it would just keep us even. If we do not address this pension issue now, we will be worrying about how we pay for the pensions and won't be able to pay for other needed services."

TribLIVE commenting policy

You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.