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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562 of Pennsylvania’s Municipal Pension Funds Classified as “Distressed”

Eugene DePasquale

Pennsylvania Auditor General Eugene DePasquale released figures Wednesday on the debt and funding status of the state’s municipal pension systems.

The majority of the state’s 1,200 municipal pension plans were funded at 90 percent or higher, according to the Auditor General’s office.

But 562 of the plans were classified as “distressed”.

From TribLive:

Pittsburgh is one of 562 Pennsylvania municipalities with distressed pension funds, according to figures Auditor General Eugene DePasquale released Wednesday.

About 1,200 municipalities in Pennsylvania administer their own pension plans. Collectively, they were $7.7 billion underfunded through 2012, up from $6.7 billion the year before.

“It’s gone up by $1 billion with no sight of action yet by the Legislature,” DePasquale said. “There’s no way around it; we need a statewide solution.”

Most of the shortfall was in Philadelphia, where the city’s unfunded liabilities surpass $5.3 billion, according to July 2013 figures. Pittsburgh was the second-highest as of January 2013 at about $484 million.


DePasquale recommends some short-term fixes. Governments should prohibit employees from “spiking” their pensions by working extra overtime, increase age and service requirements in accordance with increased life expectancies, and ensure all plans require members to contribute.

Long term, DePasquale wants local plans consolidated into a state system with job-specific classes: police officers, firefighters and non-uniformed employees.

The state’s auditor general says he will “continue to beat this drum” until lawmakers come up with a way to make municipal pension systems more sustainable.


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