News Column

Report calls hybrid pension proposal a bad deal for future hires and taxpayers

June 3, 2014

By Jan Murphy, The Patriot-News, Harrisburg, Pa.



June 03--A proposed hybrid pension plan would lead to draconian pension benefit cuts for new state and school employees and produce little savings while potentially triggering a spending spree for the next few years, according to a report issued today from the labor-supported Keystone Research Center of Harrisburg.

The center's executive director Steve Herzenberg said the defined benefit-defined contribution retirement savings program, proposed by Rep. Mike Tobash, R-Schuylkill, is not the answer to addressing the $47 billion unfunded liability that the pension systems have accrued for benefits owed to current and past employees.

Rather, he said the lawmakers should focus on building on the 2010 reforms to the Public School Employees' Retirement System and State Employees' Retirement System by "addressing the root cause of Pennsylvania's pension debt, low employer contributions."

The report bolsters the claims of labor unions representing public that the Tobash plan is a bad deal all the way around.

"It devastates the retirement security of workers without providing substantial savings to either the state or schools districts and won't pay down pension debt any faster," said Gabe Morgan, president of the State Council and Pennsylvania State Director for SEIU 32BJ.

A message left for Tobash was not returned by the time of this post.

Tobash's plan would have the first $50,000 a new employee earns and first 25 years of service be covered by a defined benefit plan. (That $50,000 threshold would rise by 1 percent annually.) A defined contribution, or 401k style, plan would kick in for earnings above that threshold or for service beyond 25 years.

He promotes the plan as a way for the state to get its arms around the massive unfunded liability problem and prevent the pension systems from getting into a similar financial predicament in the future.

The Public Employees Retirement Commission's actuarial report last week determined the plan would produce $11 billion in savings over 30 years, but the Keystone Research Center's "New Pension Plan a Step Backwards" report considers that figure to be overly optimistic.

It estimates the savings to be about $3 billion, but goes on to say the potential transition costs associated to moving to the hybrid system would more than wipe out those savings.

While Tobash's plan includes no planned reduction in the amount taxpayers will pay into the pension systems -- or "collars" in legislative speak -- for the next few years to free up tax dollars for other uses, Herzenberg and state Treasurer Rob McCord said undoubtedly, that temptation will be there given the state's precarious budgetary situation.

Further, both men said during a conference call with reporters that while a majority of private sector workers may lack adequate retirement security, adding to the misery index by flooding the ranks of those who will teeter at the edge of poverty in retirement won't help.

"We need to be doing more to help middle middle-class people have retirement security of some form, but a step in the wrong direction is to increase the armies of people who would have a lack of retirement security," McCord said.

Herzenberg added the focus of the state's efforts should be on how to make retirement security in the private sector more like the public sector, "not how can we destroy retirement security in the public sector."

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(c)2014 The Patriot-News (Harrisburg, Pa.)

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Source: Patriot-News (Harrisburg, PA)


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