Earlier this year while most folks were focused on the state budget impasse, a pitched battle was waged under the capitol dome, one that set the stage for a larger war over public pensions and how to deal with what everyone agrees are rough seas ahead.
Pennsylvania’s two largest pension funds, the State Employees Retirement System and the Public School Employees Retirement System see massive problems in 2012. Municipal pensions across Pennsylvania, most notably in Philadelphia and Pittsburgh, are also teetering on the brink or already underfunded. The media will point fingers, cast blame and ponder how we got here. None of that matters. As the old saying reminds us: wherever you go, there you are. And here we are.
The battle over House Bill 1828, which ultimately gave Philadelphia the authority to raise its sales tax and make changes to its pension amortization schedule, temporarily staved off the pain. What was clear during the debate and wrangling over HB 1828 is that there will be a concerted effort at every level of government, from the General Assembly to the municipal and school board collective bargaining tables, to switch public pensions from defined benefit plans to defined contribution plans.
While the effect of such a switch on pension plan solvency can be argued either way, what is less clear is the impact that it will have on retirees and current workers who are nearing retirement age. We learned this week in Michigan that defined contribution plans do not come close to offering the same level of retirement security that defined benefit plans provide. More critical, however, is that they were never designed to do so. They were originally envisioned as supplements to retirement income, not the whole shootin’ match. Check out the story here.
As lawmakers begin preliminary discussions on pension reforms, perhaps as early as January, it will be interesting to see if anyone discusses wholesale pension changes in the context of how many Pennsylvanians may end up falling well below the poverty line while in the twilight of their lives. Everyone -- from workers to employers to elected officials -- has a huge stake in the outcome of this particular poker game.