Guest EDITORIAL: Pension reform is a start, but could have gone further

June 13--With a pension reform bill signed into law by Gov. Tom Wolf, Republican legislative leaders and the Democratic administration cracked a two-decade-old problem.

If only they had solved it all the way.

Yes, the Senate-approved bill that passed the House last week reduces future pension cost spikes by creating a new retirement system for state workers and public school teachers hired after 2019.

That's because taxpayer contributions to a proposed 401(k)-style retirement account can be predictably budgeted each year.

Yes, it would, as supporters argue, increase projected savings from the bill if future investment results from the pension systems failed to meet targeted averages.

And yes, the bill the Senate approved on a 40-9 vote on Monday shifts the risks away from taxpayers and onto state and school employees (who are also taxpayers, we'd add) in the event of future financial market downturns.

A Pew Charitable Trust analysis indicates it is the largest shift in taxpayer risk of any state's pension reform enacted to date.

But -- and this is a big and important but -- critics are also correct that the bill does little to shave off the unfunded liability caused by state government and school district pension contributions.

Those increases, in turn, have diverted money away from such initiatives as smaller class sizes, tax cuts or more funding for social services.

To an extent, state government has no one but itself to blame in this instance. The pension mess was created during an incomprehensible moment of greed under former Republican Gov. Tom Ridge and then exacerbated under Democrat Ed Rendell, who short-changed pension contributions to fund his own pet programs.

At this writing, the unfunded liability carried by the State Employees Retirement System and Public School Employees Retirement System is a staggering $70 billion. That's a time bomb in the middle of the state's finances simply waiting to go off.

As an analysis by the conservative Commonwealth Foundation notes, the state has enough assets to carry 60 percent of that liability.

Only four states have pension plans with a worse funding ratio, the analysis notes.

According to an analysis by the state's Independent Fiscal Office, the Senate-approved bill shaves just under $1.4 billion from the combined, taxpayer-funded portion of the pension costs through 2050.

Put another way, that's a savings of less than one-fourth of the pension tab for the current budget year, spread out over the next generation, as PennLive's Charles Thompson reported.

And costs would actually increase slightly over current projections through the next 15 years.

Still, in terms of total projected costs, the taxpayer-funded part of the bill would drop by about two-thirds of one percentage point through 2048.

The savings are so small because the policy-makers are trying to wring savings out of a group of employees that aren't causing the current problem -- future hires.

It's an imperfect solution, to be sure. But it's better than the current solution, which has been to wrestle unsuccessfully with the issue without reaching any resolution at all.

Senate Majority Leader Jake Corman, R-Centre, called the reform bill, which give most future state and school employees three choices for retirement savings (including that 401(k)-style plan) "the medicine that will move us forward in a way that future Legislatures will be proud of."

We wouldn't go that far. But it is a good start. And it's one that lawmakers can always try to build upon in the future.

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