Representatives from Pennsylvania's statewide pension plans for public employees said Wednesday that taxpayers could be on the hook for massive hikes in pension payments.
The Public School Employee Retirement System (PSERS) and the State Employee Retirement System (SERS) covers public school employees, state workers, legislators, judges and other government employees. Board members from both groups appeared before members of the House Appropriations Committee on Wednesday to discuss how those pension plans will affect the state's budget, in 2010 and beyond.
At the center of concern is the upcoming "spike" in pension benefits that are due in fiscal year 2012-13, when pension fund estimated contributions from the state will jump by nearly 20 percent.
During Wednesday's hearing, there were plenty of questions, but few clear answers.
"We do not have one single answer to deal with this," said Leonard Knepp, SERS executive director, of the 3.81 billion unfunded liabilities that currently exist within the pension program. "We don't have one solution, and I know you're looking for us to come up with one idea or one answer, and we really don't have that at this point, there are just several solutions out there and we need to look at all of them."
The state pension systems are nearing a major breaking point, which will require a significant increase in taxpayer funding by 2012 in order to keep up with rising pension liabilities. According to projections provided by the Commonwealth Foundation for Public Policy Alternatives, the average household payment for SERS/PSERS will jump from $212 in 2010 to more than $1,500 by 2013.
The pension problem is really two problems, said Knepp. There is the immediate need for cash to pay the $3.8 billion unfunded liabilities for SERS, and the nearly $15 billion in unfunded liabilities for PSERS. The second problem is the system itself, which the Commonwealth may be unable to maintain because of the costs involved.
Mr. Knepp pointed to the low contribution rate - only ten percent of total contributions came from the state during the last decade - as a major cause of underfunded state pensions.
"The state employees and the teachers have been putting their fair share in every year and we have not. Shame on us that it hasn't occurred, we should have been doing this all along," said Rep Mario Scavello (R-Monroe).
"During the good years, instead of paying our normal costs, we ended up putting it on a credit card, and now that credit card has come due, so if I change it to another system and another credit card, it will probably add even more to what it will cost in the long run. If we do not get enough money to meet our normal costs, we can't invest it, and then we have even less and the amount the taxpayers owe will be even greater," said Melva Volger, chairman of the PSERS board.
Moving forward, the state could consider a change from defined benefits to a defined contribution plan for employees' pensions, but that solution cannot be applied to existing pensions, since changing benefits is not legal. As for the unfunded liabilities that will cost taxpayers in 2012, a cap increase measure could limit the degree to which pension rates can rise, but that could end up costing more.
"If you modify the methodologies that we use to calculate the costs, all that does it move the cost down the road, so these changes that we're talking about will not deal with the 3.8 billion. Eventually, the cost of the system is improved through benefit changes, but you will not see any changes in the immediate future," said Mr. Knepp.
"Any suggestion in the budget next week that would say we can reduce the current contribution rate and therefore free up funds to be used in other areas of the general fund...that is not assisting this pension crisis that we have," said Rep. Douglas Reichley (R-Berks, Lehigh).
Eric Boehm is a reporter for the Pennsylvania Independent. He can be reached at Eric@PAIndependent.com