Corbett's Pension "Fix" Will Increase PA's Pension Debt by $25 Billion, Says PA. Treasurer
PA.'s pension system is underfunded, mainly because Governor Ridge signed a law that increased pensions for legislators and allowed the state to avoid paying into the pension system for years. Meanwhile, state employees and teachers always paid 7% of their salaries into the system each year, without interruption. A law passed during the Rendell Administration reduced pensions for new state employees, saving billions.
Now Corbett is proposing a "fix" to the state pension system that will actually increase the state's pension debt by $25 billion, according to the PA. State Treasurer. Part of the problem is that for ideological reasons, Corbett is trying to switch over to 401(k) type plans. The problem is the system needs the payments from current workers to pay the obligations for new retirees. Corbett's plan would segregate the funds paid by newer workers. No state has ever successfully converted to 401(k) type plans because the up-front costs are so high.
Great piece on this topic by Stephen Herzenberg, one of the most respected economists and public policy analysts in PA.
http://www.philly.com/philly/opinion/inquirer/20130520_Pension__fix__will_be_costly.html
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