Pennsylvania’s State Employee Retirement System Crisis

Pennsylvania’s State Employee Retirement System Crisis

Published: Oct 11, 2010 at 9:02 pm

By Sean Carpenter

October 11, 2010

Sean Carpenter is a member of the West Chester Board of Education.  This opinion is solely Mr. Carpenter’s and does not represent the opinion of the Board.

On Monday, August 30 I was part of a panel discussing the Pennsylvania State Employees Retirement System (PSERS) in which we shed light on how this system is going to affect the West Chester Area School District starting next year. As a result  of various economic and political failures, there is a current negative imbalance in the benefits promised to the assets held. The PSERS pension, along with its sister SERS pension system, is not only going to dramatically impact the WCASD but also every single municipality, township, and county in Pennsylvania.
 
For our school district, this could mean significantly higher taxes or reduced programs and services. For the county and the state, it could mean crippling taxes that threaten the current services those entities provide.
 
While ideas for possible solutions provided by the Commonwealth Foundation (www.commonwealthfoundation.org) were introduced on August 30, they were only one of many differing opinions on this subject. I am hopeful that our informational meeting began a conversation around all possible ideas, not just mine and not just the Commonwealth Foundation’s, on addressing and correcting our current pension system.
 
It seems to me that there are four general ways to view solutions to the current pension crisis:
(1) Keep the status quo: Paying up to 30% of salaries to the system and the resulting 20-year tax spike, because the cost is worth it.
(2) Push the problem to future generations: Through underpayment of obligations or re-amortization of existing debt without any changes to the current pension system.
(3) Fix the long term: Making systemic changes to the system itself to eliminate future pension spikes.
(4) Eliminate the system outright: Defaulting on our existing obligations.
 
In my opinion, none of the four ideas will fully work if implemented alone. Perhaps we could suggest a combination of several of these ideas to successfully combat the financial problems we face.
 
For example, even if we were to move all new participants in the system to a defined contribution plan, like a 401(k) where the full amount of the retirement is owned and risk managed by each employee, we would still see a significant spike in the amount we need to contribute to fulfill our existing obligations. Instead, some of the proposed solutions include a mix of numbers 2 and 3, where the long term is settled by a change to the system and the short term is settled by re-amortizing the existing obligations.
 
On the other hand, if we solely pursued solution #2 of arbitrarily underpaying our obligations, this could have several negative long-term consequences. The first is that if the financial underpinnings don’t change, we would simply be delaying the inevitable. The second possible impact is that when market returns on the system are good (as we hope they will be) there is less capital in the system to take advantage of those returns. The less we put in, the less we make.
 
Surely there could be many other variations on the above, and I look forward to hearing from my constituents as I likewise try to make my opinion heard by my representatives. The free exchange of ideas is critical to a healthy democratic society, and I hope that the August 30th meeting helped to launch a robust and genuine dialogue about what we need to do.  

Sean Carpenter, West Chester Borough