tom corbett | Pension360

Think Tank Director: Corbett’s Pension Proposal Would Increase Pension Debt and Reduce Benefits

Stephen Herzenberg, the executive director of the Keystone Research Center, took to the newspaper on Monday to counter Pennsylvania Gov. Tom Corbett’s argument that the best bet for saving the state’s pensions would be to switch new hires into a 401(k)-type plan.

Herzenberg claims in an op-ed that such a plan would provide no savings for the state, reduce benefits for retirees and actually increase the state’s pension debt.

Herzenberg starts by talking about the fees and other costs associated with 401(k) plans. From the op-ed, published in the Patriot-News:

For two years, Governor Corbett has advocated a shift from pooled, professionally managed, defined-benefit pensions to a system where each employee manages an individual account, similar to a private sector 401(k) plan.

[…]

How does the efficiency of today’s defined benefit pensions system translate, in bottom-line terms, measured by the level of contributions required to fund retirement? According to the National Institute on Retirement Security, individual 401(k)-style accounts cost 45% to 85% more than traditional pooled pensions to achieve the same retirement benefit. That’s a big efficiency gap.

A lot of this efficiency gap results from the fees that financial firms charge holders of individual accounts – for administration, for financial management and trading stocks, and for converting savings at retirement into a monthly pension check guaranteed until the end of life – an “annuity.” In essence, these fees are transfer from Main Street retirees to Wall Street. In an economy with stagnant middle-class incomes and all the gains for recent growth already going to the top, such a transfer seems like the last thing we need.

Given the high fees and low returns of 401(k)-style accounts, it is hardly a surprise that actuaries who have studied the Governor’s proposal for an immediate switch to them – or a more gradual switch under a new “hybrid” proposal that the Governor now supports – don’t find any savings.

Far from providing savings, in fact, this switch could result in a large upfront transition costs – because the investment returns on the existing pension plans would fall as the plans wind down. The Governor’s plan was projected to have a $42 billion transition cost.

He goes on to write that Corbett’s plan would be “highly inefficient” and would actually reduce retirement benefits. From the op-ed:

The switch would also reduce retirement benefits. This is not only bad for teachers, nurses, public safety personnel, and other public servants. It could also require a future wage increase to enable the state and school districts to attract and retain high-quality staff – another cost to taxpayers.

In his recent book on inequality, economist Thomas Piketty worries that high returns and low financial management costs are only accessible to massive pools of wealth. This means that the assets of the wealthiest individuals and families grow faster than the wealth of the rest of us. It reinforces the drfit back towards Gilded Age levels of wealth inequality.

But in the context of public sector retirement plans, defined-benefit pensions give taxpayers and the middle class the ability to grow their pooled retirement savings in the same manner as Warren Buffet and Bill Gates.

If define benefit pensions are poorly managed, as they have been in Pennsylvania, they do create some challenges. As with paying a credit card bill, if you don’t put in the required contributions you can run up a large expensive debt. But the way to fix that problem is to pay the required contributions, not to switch to a highly inefficient retirement savings vehicle.

Read the entire column here.

Think Tank: Pennsylvania Lawmakers Need To Reform Pensions – Now

Katrina Anderson, a senior policy analyst and director of government affairs for the Commonwealth Foundation, has published an op-ed in today’s Patriot-News urging Pennsylvania lawmakers to “reform the [pension] system now”.

Ms. Anderson explains her support for a solution similar to Gov. Corbett’s plan, which would move new hires into a 401(k)-style plan. An excerpt from the op-ed:

The first step lawmakers need to take is changing state-level retirement plans for themselves and new teachers and government workers. This would not erase our $50 billion pension debt, but it would prevent the problem from getting worse while protecting families from higher taxes and preserving the system.

Our current pension system has a huge flaw: It’s too easy to boost benefits when times are good and skip payments when they aren’t.

Moving new employees to a well-designed 401(k)-style plan would prevent deliberate underfunding and make “kicking the can down the road” impossible.

Reform would also benefit employees. As workers change jobs—an average of 10 times in a career—retirement portability and personal ownership of investments have never been more important. Such flexibility simply can’t be found in the current system.

But flexibility is the hallmark of 401(k)-style plans, which are also always fully funded—meaning they carry no debt—and offer predictable costs.

Not only has most of the private sector already left the old system behind—including the Wolf Organizaiton, founded by Democratic gubernatorial candidate Tom Wolf—but many states have as well. Since 1996, 18 states have converted to plans which build on the 401(k) model.

There are several bills in the General Assembly that would address this crisis for new employees, including plans that combine aspects of the current system and 401(k)s into what’s commonly called a hybrid plan, as well as reforms addressing the municipal pension crisis.

Conventional wisdom says lawmakers won’t do anything significant shortly before an election. But many statesmen in the legislature are fighting on behalf of retired teachers like Bill Frye to address this issue now.

They should understand—as property tax payers already do—that the stakes are too high to play politics and ignore real reform.

Anderson points out that pension costs have risen more than $600 per household since 2008—and are projected to rise another $550 per household in the next five years.

Read the entire column here.

Corbett Promises Special Pension Session If Re-Elected

Pennsylvania‘s incumbent candidate for governor, Tom Corbett, has made pension reform his campaign’s rallying cry.

But Gov. Corbett’s calls for reform haven’t been met with much enthusiasm. So Corbett announced this week that, if he is re-elected, he will call a special legislative session specifically to deal with pension reform on the state and municipal level.

From New Castle News:

Gov. Tom Corbett, if re-elected this year, plans to call for a special session of the Legislature specifically to deal with Pennsylvania’s pension issues.

He would like to see the meeting address state, municipal and school district concerns.

“I’ve been trying to fight the pension battle,” Corbett, a Republican, said during a meeting with The Tribune-Democrat Friday.

“I don’t know that we’re going to even get the little bit that we’re trying to get now. I’ve already announced, I’m going to call, in my second term, right away, a special session on pensions; not just the state pension, we might as well bring in the municipal pension, too, because I can tell you, all municipalities are coming to us, saying, ‘Take a look at this.’ Is that a big one to bite off? Yes. But, if we don’t do it, who’s going to do it? I know one thing, my opponent (Tom Wolf ) is not going to touch it.”

Pennsylvania has $47 billion in unfunded pension liabilities, according to the state’s budget office.

Standard & Poor’s and Fitch Ratings both cited pension concerns when they dropped the state’s general-obligation debt rating this week.

“The downgrade reflects our view of the state’s diminished financial flexibility and growing expenditure pressures due to inaction on pension reform and limited revenue growth,” S&P said in its report.

Corbett wants to pass a plan that would shift new hires into a hybrid-type plan that more resembles a 401(k) than a defined benefit plan.

Pennsylvania Candidate Wolf Doubles Down on Pension Stance

Pension reform has been a center-stage issue since May in the race for Pennsylvania governor.

During an interview this week with the Philadelphia Public School Notebook, Democratic candidate Tom Wolf forcefully doubled down on his position that pension reform isn’t the state’s fiscal priority. The exchange:

Q: How is the escalating cost of pensions impacting school financing in Pennsylvania, and what do you think should be done about it?

A: Our current pension situation is the direct result of almost 10 years of leaders in Harrisburg kicking the can down the road and the state paying less than its fair share. What we’re seeing from Gov. Corbett is more political games – he is pushing a plan that creates no immediate savings for taxpayers.

As governor, I will let Act 120 [a 2010 law reducing pension benefits to new employees] work and create innovative solutions that are fiscally responsible and fair and beneficial to taxpayers and future employees.

A further explanation of how the two candidates differ on the issue of pensions, from the Times-Herald:

Corbett says the burgeoning cost of Pennsylvania’s public pensions is a crisis that requires prompt, decisive action. Wolf argues that it’s a problem that can be resolved in the years ahead.

Corbett wants to scale back pensions for future school and state employees as a meaningful step toward savings. He says the taxpayers’ share of the pension costs for current employees — $2.1 billion this year — is crowding out funding for other programs and helping drive up local property taxes.

Wolf contends that the pension problems are partly the result of the state contributing less than its fair share of the costs for nearly a decade and that a 2010 law reducing pension promises to future employees and refinancing existing obligations needs more time to work.

Act 120 was a 2010 law that reduced pension benefits for some employees but kept intact the current defined benefit system. Wolf has been adamant that the law needs time to work.

Corbett wants to shift new workers into a 401(k)-type plan.

Photo Credit: “TomWolfYuengling” by Tom Wolf. Licensed under Creative Commons Attribution 2.0 via Wikimedia Commons

Pennsylvania Lawmaker Speaks Out Against “Irresponsible” Reform Efforts

Pennsylvania Gov. Tom Corbett spent most of his summer traveling the state and touting the need for pension reform. The legislators are now back from their breaks, but pension reform bills continue to gather dust.

Republicans have been vocal about Democrat lawmakers’ unwillingness to work with the reform bills currently on the table. Now, one Democratic lawmaker has clarified why her party refuses to engage with the Republicans. Rep. Michelle F. Brownlee (D) writes in the Patriot News:

Republican leaders have already acknowledged the real pension problem is debt, not benefit costs. The solution to pension debt is the same as the solution to credit card debt: Pay the bills. Yet the Corbett/Republican pension proposal focuses on cutting benefits for future workers.

Act 120 of 2010 already cut new worker benefits starting in 2011 by nearly 50 percent, saving Pennsylvania $34 billion. Further cuts will sacrifice the retirement security of tens of thousands of future teachers, nurses, first responders, counselors and other public workers. The strain on safety net programs would stress future state budgets. Why do that when the Corbett plan offered by the Republicans, by their own admission, will do nothing to pay down the pension debt any faster?

If “reformers” truly believe we need to pay down the unfunded liability more quickly than Act 120 does, then they need to offer additional revenue so the state and school districts can do that.

It’s irresponsible, and a huge disservice to Pennsylvania, for those who do or should know better to continue misstating the pension problem and misleading the public about the solution.

She was responding to an editorial lambasting both parties, written last week by Dwight D. Weidman, vice-chairman of the Franklin County Republican party. He wrote in the Patriot News:

A very wise Pennsylvania politician recently opined, “In Pennsylvania, the unions buy Democrats, and rent Republicans”.

No doubt what the author of this statement was thinking about when he made it was the fact that close to twenty Republican legislators have steadfastly opposed any attempt to help enact urgently-needed reform to Pennsylvania’s public employee pension system, because of their ties to public sector unions.

To be sure, not a single Democrat legislator is willing to step up and save the state from certain bankruptcy, but that shouldn’t really matter, since the Republicans control both the Senate and the House and could fix our pension debt crisis, but won’t, and that is disturbing.

[…]

If lawmakers fail to act, this issue will, in time turn Pennsylvania into a large-scale version of Detroit, with both businesses and population fleeing ever more burdensome taxes that will be needed to fund the growing pension obligations.

Weidman criticized the 16 Republican assemblymen who “won’t get on board” with pension reform efforts. Many of those lawmakers receive campaign support from various unions.

Pennsylvania Lawmakers Return From Break, But Pension Reform Remains On Backburner

Pennsylvania lawmakers returned to the capitol this week to convene for the fall legislative session. While they were out, Gov. Tom Corbett traveled around the state and continued to try to drum up public support for pension reform and his re-election.

But the pension reform bill currently in the House seems unlikely to go anywhere; lawmakers now have other bills on their mind. Reported by the Pittsburgh Post-Gazette:

Legislators returning today to the Capitol are expected to take up several bills during their month-long stint before the election, but there is little sign yet that the pension overhaul promoted by Gov. Tom Corbett will be among those headed to his desk.

House Republicans’ efforts to pass the legislation remaking retirement benefits for future state and public school workers consumed significant energy in the lead-up to the signing of the state budget in July. Mr. Corbett urged legislators to send him the bill, which would limit the defined pension benefit while adding a 401(k)-style plan, but with Democrats opposed, Republicans in the House were unable to rally enough votes from their own ranks.

The Republican governor embarked on a statewide tour to emphasize the costs of the existing systems, while House Republicans say they met to discuss pensions throughout the summer.

“We’re still within striking distance,” Steve Miskin, a spokesman for House Majority Leader Mike Turzai, R-Marshall, said last week.

If the bill were to clear the House, it would face another hurdle in the Senate, where members instead approved a bill to move elected officials from the traditional pensions systems to 401(k)-style defined contribution plans.

The bills that are taking precedence over pension reform include a proposal to increase taxes on cigarettes and legislation surrounding ride-sharing programs such as Uber and Lyft.

Democrats are also working on raising the state’s minimum wage and securing more education funding.

Photo: Chesapeake Bay Program via Flickr CC License

Pennsylvania Gov. Corbett, Trailing in Polls, Says He Will “Force Action” on Pension Reform

There’s less than two months until Pennsylvania residents will decide who becomes their next governor, and incumbent Tom Corbett finds himself trailing in polls by 15 points to Democratic challenger Tom Wolf.

Pension reform has been a central facet of Corbett’s campaign, and he doubled down on that stance Wednesday when he said he would “force action” on pension reform if he is re-elected. From the Philadelphia Inquirer:

“If I don’t get reelected for four more years, there will be nothing done about this, because Mr. [Tom] Wolf says there is not a pension problem,” Corbett said.

If he wins a second term, Corbett said, he would call a special session of the legislature early next year to force action on pensions, including for municipal workers. He said Scranton is distressed because of unaffordable pension obligations and predicted some school districts in Pennsylvania will come “doggone close to bankruptcy” without a solution.

Pension360 has previously covered polling data suggesting Pennsylvania voters are much less engaged on pension issues than they are on other topics, such as education. Corbett acknowledged as much on Wednesday in a chat with the Philadelphia Inquirer’s editorial board:

In the governor’s view, he is hurting politically because he has taken on issues “no one else will touch.” He mentioned his efforts to cut future pension costs, to end the system of state-controlled liquor stores, and to privatize management of the state lottery. The legislature, controlled by fellow Republicans, has stymied Corbett on all three priorities.

“If I had been looking toward reelection, do you think I would have taken on pensions, when all it does is get everyone upset?” Corbett asked. He added that he hoped voters would give him credit for trying.

Tom Wolf does not support Tom Corbett’s pension reform plan. In a statement Wednesday night, a Wolf spokesman characterized Corbett’s plan as “kicking the can down the road”.

Pennsylvania Lawmaker Proposes Trash Tax to Ease Pension Pains

Pennsylvania Governor Tom Corbett has made pension reform a major part of his re-election platform, but has had little luck finding lawmakers to help him push through proposals.

One lawmaker put a new idea in the ring Thursday, although it’s probably not what Corbett had in mind.

Reported by the Morning Call:

State Rep. David Milliard thinks there may be pension gold buried in the state’s landfills.

On Thursday, the Republican from Columbia County floated a bill that would impose an additional $3 tipping fee on waste haulers to reduce school districts’ rising pension costs.

The additional fee would generate an additional $51 million and be put into a new pension-only fund controlled by the state Treasury, according to a memorandum Milliard published seeking co-sponsors to his bill. The Additional Commonwealth Contributions to School Districts Account.” to be used to help districts lower pension costs. The money would be distributed to districts, but not charter schools, on a prorated basis.

The proposal is meant to ease pension costs for school districts, which are subject to rising contribution rates designed to help cover the state’s pension funding shortfall. From the Morning Call:

Mandatory pension payments for school districts rose about 4.5 percent to 21.4 percent of payroll this fiscal year. The rising rates are based on Act 120, which went into effect in 2011. The law sets a increasing, fixed rates the state and school districts must pay each year to cover back pension debt, which is now approaching $50 billion. The state and school districts are having trouble keeping up with those payments even though they are lower than they would be if the law were not in effect.

So far, no other lawmakers have sponsored the bill.

The Difference Between Tom Corbett and Tom Wolf on Pensions

Despite a lack of voter engagement on the issue, pension policy continues to play a large role in the Pennsylvania race for governor.

The candidates harbor very different views on how to handle the state’s pension system going forward, but the Associated Press did the service of clarifying where both candidates stand on the state’s pension issues:

PENSIONS

-Corbett says the burgeoning cost of Pennsylvania’s public pensions is a crisis that requires prompt, decisive action. Wolf argues that it’s a problem that can be resolved in the years ahead.

-Corbett wants to scale back pensions for future school and state employees as a meaningful step toward savings. He says the taxpayers’ share of the pension costs for current employees — $2.1 billion this year — is crowding out funding for other programs and helping drive up local property taxes.

-Wolf contends that the pension problems are partly the result of the state contributing less than its fair share of the costs for nearly a decade and that a 2010 law reducing pension promises to future employees and refinancing existing obligations needs more time to work.

Read the rest of the article for further clarity on where each candidate stands when it comes to taxes, education funding, and more.

Pennsylvania Auditor General Calls For “State-Wide Solution” After Audit Reveals Scranton Pension System Could Be Broke Within 3 Years

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After a two year audit, Pennsylvania’s Auditor General announced today that Scranton’s pension system could become broke in 3 to 5 years—and forcefully indicated that Scranton was symbolic of larger, state-wide pension funding issues.

On Scranton, the Times-Tribune reports:

That dire prediction [3-5 years] could be optimistic, as the pension funds face paying out as much as $10.5 million owed to retired police and firefighters because of the $21 million back pay court award to active members. The auditor general’s office did not evaluate the impact of the award in its audit released Wednesday.

With a funding ratio of just 16.7 percent, the city’s firefighters fund is in the worst condition of any plan in the state, Mr. DePasquale said, and will be unable to pay benefits in less than 2½ years. The non-uniform fund isn’t much better, projected to be insolvent in 2.6 years, while the police fund has less than five years.

The sobering news, presented at a press conference at City Hall, is contained in an audit Mr. DePasquale’s office conducted of the funds’ condition from January 2011 to January 2013.

The Auditor General said the only fiscally sustainable way forward was to reform the state’s pension system. From the Times-Tribune:

He’s called for several measures, including consolidating plans into a statewide system and increasing funding to municipalities with distressed plans.

“We don’t see any way this can be fixed by Scranton alone,” Mr. DePasquale said. “I believe strongly that a statewide solution is needed.”

While Gov. Tom Corbett and the state Legislature debated state pension system reform this summer, it has yet to address the pension crisis some municipalities face. When Mr. Corbett visited Scranton earlier this month and a reporter asked about the city’s pension crisis, he declined to weigh in.

But that reform doesn’t seem likely to come.

Pension360 covered this week Corbett’s futile efforts to kickstart pension reform. Polls have indicated the voters aren’t as engaged by pension issues as they are other issues.

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