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Report Finds Proposed Pension Reform a Loser

A new report says Pennsylvania's proposed pension bill would likely increase costs more than its projected savings. (Jim Bowen/Flickr)
A new report says Pennsylvania's proposed pension bill would likely increase costs more than its projected savings. (Jim Bowen/Flickr)
October 26, 2016

HARRISBURG, Pa. – No savings for the state, but big cuts for retirees. Those are the findings of a report on proposed state pension reforms.

The report from the Keystone Research Center says the "three-way hybrid" reform being proposed by Republican lawmakers would not save the state any money in the first 12 years.

But Stephen Herzenberg, the center's executive director, said an independent analysis presented to the Legislature found a big impact on future retirees.

"They looked at a lot of variations, but the cuts were at least 15 percent – and in a substantial number of cases, more than 50 percent," said Herzenberg.

Proponents of the reforms say they will protect taxpayers from fluctuations in earnings on pension fund investments.

But Herzenberg pointed out that teachers in Pennsylvania already are earning ten to 15 percent less than comparable private-sector employees, and cuts to retirement benefits would force an increase in teacher salaries to make up the difference.

"So down the road, it's not simply true that this pension plan won't save taxpayers money," he insisted. "In the long run, this pension plan would cost taxpayers and school districts more money."

The analysis of the funds found that even if investments fell significantly short of projections, the savings for the state under the proposed reforms would be less than one percent of the current pension shortfall.

According to Herzenberg, current problems are in part because of poor management by the Legislature. He noted that for a decade, Pennsylvania was 49th out of the 50 states in terms of meeting its obligation to put money into the pension funds.

"When you treat pension plans like they're free, and you experience the worst financial markets in 75 years, that's a recipe for an underfunded pension," he said.

He added that positive changes to the pension system made in 2010 already are reducing risk to taxpayers, but it will take years to get the funds back on a firm financial footing.

Andrea Sears, Public News Service - PA