Would a “Buyback” Program Help Ease Pennsylvania’s Pension Problems?


Pennsylvania is shouldering $47 billion of pension debt, according to the Governor’s Office, and that figure doesn’t include the unfunded liabilities of the state’s municipal pension systems.

No easy solution awaits. But Thomas A. Firey, managing editor of economics journal Regulation, writes on Philly.com that a “buyback” program is worth considering.

Firey writes:

The deficits have prompted calls to cut benefits, but workers and their unions reply that these promises were made in good faith – and written into contracts. It’s hard to disagree. Also hard to dispute are the concerns of state residents who point to an already heavy tax burden that makes it hard to provide for their families, let alone public employees. Finally, there are those who worry that essential services could be cut in any pension fix.


Harrisburg should create a program that would allow individual state and local public employees to voluntarily sell back some of their pension benefits in exchange for cash. If engineered correctly (perhaps using an auction mechanism), the overall savings to taxpayers could be very large, even if the state has to borrow money for the payouts.

If this program were implemented, everyone would win. Workers who sign up would get more immediate compensation, while non-participating members would see no change in their retirement benefits. The long-term pension cost to taxpayers would be reduced, and lawmakers would be under less pressure to cut government programs.

The new governor, state legislators, and union leaders should consider this option if they are serious about addressing the commonwealth’s pension crisis.

Read the full piece, including a description of a similar initiative’s fate in Illinois, here.


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Time For New Jersey To Face the “Bitter Truth”, Says Pension Panel Chairman

Seal of New Jersey

The chairman of the New Jersey Pension and Health Benefit Study Commission, the panel assembled by Chris Christie to address the state’s pension problems, has published a column today in the New Jersey Star-Ledger.

In it, Thomas J. Healy writes about the “bitter truth” about pensions that people will have to swallow: that Christie’s previous reforms “did not come close” to fixing the problem and now the options for fixing the state’s pension system “are uninviting”.

From the column in the Star-Ledger:

It’s time for New Jerseyans to swallow some bitter truth about our state’s public employee pension and health benefit systems.

The commitment of elected officials over two decades to offer benefits that were unaffordable, coupled with the failure of the state to make required pension contributions when they were due, has landed New Jersey on the edge of a gaping fiscal cliff. Unless the crisis is dealt with firmly and comprehensively, it is certain to become more dire in the period ahead.


Concerted efforts have been made during the past 10 years to fix the problem. However, significant pension plan reforms in 2010 and 2011 have not come close to correcting two decades of underfunding by both Democratic and Republican administrations in Trenton.

Fortunately, awareness of the need to actively address the problem cuts across both parties. Former Gov. Jon Corzine has acknowledged that “current benefits are financially unsustainable.” And, in the course of naming a 10-member bipartisan commission on Aug. 1 to study the problem and recommend possible long-term solutions, Gov. Christie warned that “if we don’t do more, and we don’t do it now, the state will be forced to make harder choices in the future.”

While this bipartisan understanding is helpful, it doesn’t diminish the complexity of the job ahead, as outlined in the just-released status report of the New Jersey Pension and Health Benefit Study Commission. Indeed, the options for making the public employee pension and health benefits systems fiscally viable are uninviting. Employees have already made concessions, and a tax increase of the size necessary to fund the escalating cost of benefits (in a state which already has one of the highest tax burdens in the nation) is unrealistic. So is any effort to divert revenues from an already tight state budget.

The commission’s second report will propose specific recommendations for reforming New Jersey’s pension system.

The first report, which came out last week, presented an overview of the fiscal situation surrounding pensions but didn’t provide ideas for reform.