Pennsylvania’s pension systems are at a crisis point. Not at some point in the future. I mean right now. And yes, I said “systems.” A lot of attention goes to Pennsylvania’s two major statewide pension plans—the State Employees’ Retirement System (SERS) and the larger Public School Employees’ Retirement System (PSERS)—but the state’s local government pension systems also are woefully underfunded.
Reforming PSERS and SERS is a priority for the Corbett administration and many legislative leaders. Actuarial valuations are revealing, and a cause for budgetary concern. According to recent testimony by Budget Secretary Charles Zogby to the Public Employee Retirement Commission, the latest numbers show that SERS has an unfunded liability of nearly $15 billion and is 65.3 percent funded, while PSERS has an unfunded liability of $25.5 billion and is 69.1 percent funded. SERS and PSERS will have unfunded liabilities of $65 billion by 2021.
The impact on our state’s budget is potentially staggering. Again, according to Zogby, in the current 2012-2013 fiscal year budget, the General Fund appropriation for the Commonwealth’s share of the employer contribution to PSERS is $856.1 million, up $255.9 million, or 43 percent, from last year’s amount of $600.1 million. Similarly, Pennsylvania’s contribution to SERS is projected to be $677.4 million in the 2012-2013 fiscal year, up $209.3 million, or 45 percent, from last year’s $468.1 million.
The consistent annual increases in contributions to SERS and PSERS are crowding out other important program areas by swallowing limited funding.
This is only half of the story.
You may not be aware that Pennsylvania has more than 3,200 separate local government pension plans—25 percent of all such plans in the nation! Two-thirds of these plans have 10 or fewer active members, and many are grossly underfunded.
Municipalities across the state face ever-mounting financial challenges. Tax base loss, crumbling infrastructure, and escalating health care and pension costs strain their financial capacity. Federal funding to the states is being curtailed, and that results in less state funding to municipalities.
The pension problem is not just a city problem. Pension stress can be found in boroughs and townships in rural, suburban, and urban areas. Sixty-six of Pennsylvania’s 67 counties have at least one municipality with a pension plan that is under a high level of financial stress. About one-third of Pennsylvanians live in a municipality with a distressed pension plan.
It’s also not just a municipal problem. By 2035, local school district pension costs will be 14 times higher than today.
PICPA’s Fiscal Responsibility Task Force report [PDF] in January 2011 called attention to the growing state pension crisis.
The report notes, “State government has long delayed making difficult decisions about the growing pension obligations resulting from the defined benefit promise made to participating employees. The simple fact is the pension systems for school teachers, public employees, and state lawmakers are not sustainable in their current forms considering the fiscal challenges the state now faces.”
As a member of the Coalition for Sustainable Communities, the PICPA is working closely with its coalition partners to implement a common agenda to promote municipal financial health. Efforts include developing legislation to address the shortcomings of the binding arbitration law, Act 111, as well as legislation to address the shortcomings of municipal pension laws.
I urge PICPA members to check out the Coalition for Sustainable Communities’ website to get better informed about this vitally important issue to our state’s fiscal health.