Instead of changing pension benefits for state and school employees, legislators must focus on tax fairness, spending reforms and maximizing revenue, public sector pension advocates said Wednesday.
In an editorial board meeting with The Times-Tribune, the advocates from the Pennsylvania State Education Association and Keystone Research Center also said the state must let pension reforms enacted in 2010 have time to work.
Under a plan unveiled by Gov. Tom Corbett earlier this year, new employees would be moved to a defined contribution plan and the formula would be changed for future benefits for current employees' plans. The plan would address the state's $41 billion in unfunded liability.
"We're not big fans of the governor's proposal," said Jerry Oleksiak, vice president of PSEA. "We're ready to challenge any changes for current employees."
PSEA claims any changes to current employees' plans would be unconstitutional.
The governor's plan, starting in 2015, would enroll new employees in a 401(a) defined contribution plan, similar to a 401(k) plan for employees in the State Employees' Retirement System, or SERS, and Public School Employees' Retirement System, or PSERS. Employees are now in a defined benefit plan.
Current employees would see the multiplier used to determine future pension benefits reduced by 0.5 percentage points, if the multiplier is above 2 percent. Those employees could keep the higher multiplier by paying a higher contribution rate. The amount employer contributions can be increased would also be limited.
The projected increase in contribution rates, coupled with cuts in state funding, has districts looking for relief, This year, districts are paying 12.36 percent of total salary to PSERS. By 2015-16, the projected rate is expected to be more than 25 percent, and for the next two decades, contribution rates are projected to remain in the mid-20 percent range.
Instead of making changes now, the state needs to give reform enacted in 2010 time to work, said Stephen Herzenberg, Ph.D., executive director of the Keystone Research Center, based in Harrisburg. The reform spread the pension cost spike to 2040 and changed benefits for new district employees. Along with increasing the retirement age to 65, it changes the 7.5 percent contribution rate for most employees to a shared-risk program for many new employees. For example, when investment funds are performing poorly, the employee contribution rate could increase to 9.5 percent. Current investment losses are made up by school districts.
Along with allowing time for the 2010 reform to work, the state must impose a natural gas excise tax, close the Delaware corporate tax loophole and reform cyber charter school spending and corporate tax breaks, the advocates said.
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