Pension reform: Pa.'s historic achievement
Over the years, one issue has risen to become the top public-policy priority for each of our business organizations — the need to reform Pennsylvania's public pension systems for state and public school employees. The reason for this is clear: the State Employees' Retirement System (SERS) and the Public School Employees' Retirement System (PSERS), which includes more than 800,000 retirees and current employees, face a massive unfunded liability of up to $74 billion.
The consequences of this shortfall are numerous. But the bottom line is this: Whether you're a taxpayer, a state or public school employee, a public school student or anyone who benefits from state programs or services, the rising costs of pensions are negatively affecting you in big ways.
Pension costs are crowding out investments in schools, infrastructure, public safety and other areas that state government is responsible for funding. At the same time, school property taxes rise to meet the ever-increasing pension obligations.
Because of this, the pension crisis has become the most pressing matter for the economic health of the state. The three major credit agencies have put Pennsylvania on notice. Without action taken on this issue, the agencies have threatened to further reduce the state's credit rating, which would result in taxpayers having to pay an even higher interest rate on future bond sales.
Meaningful action on this issue has been elusive in recent years. That is, until now.
A critical step in solving the pension crisis took place when Gov. Tom Wolf signed into law bipartisan legislation to reform SERS and PSERS. This landmark achievement, which affects only new state and public school employees, would provide workers with a choice of three retirement plan options including a partial — or hybrid — defined-contribution plan as well as a full defined-contribution option structured like 401(k)-style plans in the private sector.
This law meets key principles that our organizations have for years been advocating for in a meaningful state pension-reform solution. It addresses the ever-increasing unfunded pension liability; provides for cost sharing and risk predictability between state employees and taxpayers; increases the overall funding certainty of the retirement systems; and provides adequate retirement security for beneficiaries of the plans.
The Pew Charitable Trusts said that the legislation “would be one of the most — if not the most — comprehensive and impactful reforms any state has implemented.” The analysis goes on to say, “Not only does this place Pennsylvania on a path to move from 49th in making pension contributions to the top half of states, it also is the biggest turnaround in contribution adequacy nationwide.”
As we reflect on the historic passage of statewide pension reform, it's important to remember that real progress, while sometimes slow to fruition, is possible. It just takes the persistent leadership of many partners dedicated to a common goal. The values that have defined our commonwealth over the generations led to this victory. We must be mindful of this as we look toward the future and work to address the remaining challenges facing Pennsylvania.
Dennis Yablonsky is CEO of the Allegheny Conference on Community Development. Gene Barr is president of the Pennsylvania Chamber of Business and Industry. Rob Wonderling is president and CEO of the Chamber of Commerce for Greater Philadelphia.