Retire Pension Debt

Posted by By at 4 November, at 11 : 34 AM Print

Most voters have the political memory of a fruit fly and the attention span of a negative ad.

Eric Epstein

Eric Epstein

Unfortunately, taxpayers get stuck eating the bitter fruit and paying for the misleading commercials.

The pension heist of 2001 gave legislators a new retirement formula that allowed lawmakers with at least three years of service to begin drawing pensions starting at age 50. The legislature approved a 50% boost in their pension plans, and a 25% increase in future pension benefits for state workers and schoolteachers.

The pension jack makes the 2005 pay raise look like nickel-and-dime hooey.

Governor Tom Ridge signed-off the scheme as did most of the current-batch of Republican leadership including Jake Corman and Joe Scarnati
So did outgoing “under-a-cloud” Democrats like Raphael Musto and Bob Mellow. Unless the IRS and FBI hold Mr. Mellow accountable for brazen ethics and tax violations, he will retire with an annual pension of $313,000.

Among those who voted for the pension boost was Jack Wagner who appears to be the only beneficiary who has actually called attention to the fiscal gaffe and offered a plan to remedy the problem.

In September 2006, Mr. Wagner released findings from a 17-month audit of the State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS) public pension plans. The Report covered January 1, 2001, to December 31, 2004, and implored the General Assembly and governor to act “immediately” to ward off a potential funding crisis for both plans.

In 2005 SERS was underfunded by $2.1 billion and PSERS by $9.3 billion.

Rajeev Sharma, an analyst for S&P described the predicament of pension underfunding: “Standard & Poor’s views pension deficits as debt-like in nature because pension liabilities are contractual obligations for companies to make payments in the future.”

In private industry, if a pension plan is in unable to fulfill its obligation then a “minimum pension liability” must be recorded which could impact debt-to-capital ratio. With a structural debt hovering between $4 to $5 billion, Pennsylvania’s failure to adequately fund its pension funds could harm the state’s credit quality.

In this moment of new found fiscal accountability, the Auditor General suggested that state government could save taxpayers up to $381 million annually by offering workers a voluntary severance package.

Mr. Wagner stated, “State government has grown too big and Pennsylvania taxpayers can no longer afford it. With Pennsylvania facing a budget deficit of $4 billion to $5 billion next year, it’s time to institute a voluntary retirement incentive program that would shrink the state payroll an reduce the cost of state government to taxpayers.”

Wagner’s proposal also extended a lifeline for workers who may have been furloughed. The Auditor General’s office saved $1.5 million when 50 workers chose to participate in the Voluntary Retirement Incentive Program.

According to Mr. Wagner, if 7% of the 77,168 salaried employees under the governor’s jurisdiction were to accept the voluntary retirement incentive, the state would save $201 million the first year, and $381 million in the second year if those 5,402 positions were not filled.

Mr. Wagner’s proposal should be the main dish on the next Governor’s’ pension reform plate.

This post was written by:
- who has written 416 posts for Rock The Capital
Eric J. Epstein is RocktheCapital‘s coordinator and a community advocate for good government for over 25 years. Mr. Epstein is also Chairman of the Three Mile Island Alert, Inc., a safe-energy organization founded in 1977; President of EFMR Monitoring Group, Inc., a non-profit economic development corporation established in 1977, and Chairman of the Stray Winds Area Neighbors (SWAN), a smart growth association organized in 2005. Mr. Epstein was a Visiting Assistant Professor of Humanities at PSU-Harrisburg (1992-1999) and co-authored the Dictionary of the Holocaust, which was released by Greenwood Press (1997) - Email Eric Epstein

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