Pension Reform Will Likely Target Future Benefits

By Eric Boehm | PA Independent

HARRISBURG — Facing nearly $1 billion in new pension costs in the next two years, Pennsylvania appears to be inching toward reforming retirement benefits for state employees and public school teachers.

Monday, Budget Secretary Charles Zogby offered a preview of how the Corbett administration plans to deal with Pennsylvania’s $40 billion unfunded pension debt and rising annual costs. Part of the plan would target future benefits of current employees while keeping previously earned benefits and benefits for retirees in place, Zogby said during an appearance at the Pennsylvania Press Club luncheon.

“We’re not looking to take back what anyone has already earned,” Zogby said. “But for teachers and school employees, there may well be proposed changes to your pension benefits going forward.”

It will be another week before we know how the numbers add up, and the possible savings. Gov. Tom Corbett is scheduled to give his annual budget address Feb. 5.

Zogby said Corbett “very likely” will lay out a plan to achieve savings by reducing how future benefits are calculated.

Failing to reform the state’s pensions is essential to avoiding “deep, immediate and painful cuts” in the state budget both this year and in the future, Zogby said.

Pension costs will skyrocket from $1.1 billion this year to $2.9 billion by the fiscal year beginning July 2016, according to projections from the state’s Independent Fiscal Office

Unions are opposed to any reduction in benefits for current employees, even those benefits that are yet to be earned.

William Dando, director of the political and legislative department for AFSCME Council 13, which represents more than 65,000 state employees, said pension benefits should be locked in from the time an employee is hired until they stop receiving benefits at death.

If the state does go after future benefits for current employees, the union would see grounds for a lawsuit, he said.

“It’s going to all depend on what the governor lays out on Tuesday,” Dando said.

But Dave Patti, president and CEO of the Pennsylvania Business Council, said arrangements between employees and employers is always subject to change — at least they should be.

In the early 2000s the state increased benefits for public sector workers – part of the cause of the current pension crisis – so it should also be able to ratchet back future benefits for new hires and existing employees, Patti said.

“I don’t think it only goes in one direction,” he said.

Since the bulk of pension cost increases this year – about 70 percent of the $511 million increase due in the new fiscal year that begins July 1 – are in the public school teacher’s pension system, Zogby said it makes sense to tie savings in those pension costs to higher funding for school districts.

Boehm can be reached at Eric@PAIndependent.com.  Follow @PAIndependent on Twitter for more.

— Edited by John Trump at jtrump@watchdog.org