Pension Overhaul Introduced

Legislation to Overhaul Government Workers’ Pensions Introduced

May 8, 2013:

Pennsylvania’s state employee and teacher pension programs (SERS and PSERS respectively) are drastically underfunded. Combined they have an unfunded liability of over $47 BILLION.

An unfunded liability is the amount that the future payment obligations exceed the present value of the funds available to pay them. It is like to being in debt. However unlike a debt the amount "due" is can be changed through accounting tricks. The Economist magazine provided a solid explanation in a recent article:

"Suppose a car company borrowed $10 billion in the form of a 20-year bond to build a manufacturing plant and planned to pay off the debt with the profits from running the plant. The car company will assume a higher return on capital than its financing cost (otherwise it should not build the plant). But it still has to recognise the $10 billion bond liability on its balance-sheet. It cannot say it owes only $2 billion because it expects a very high return.

"The reason is clear. If the plant fails to earn a high return, the firm will still be liable to repay the bond. Similarly, if pension schemes fail to earn a high return on their assets, they still have to pay benefits. Final-salary pensions are a debt-like liability."

(Note: The entire article is worth reading if you have a couple minutes.)

In February Governor Corbett proposed making sweeping changes to the state employees’ and teachers’ pension programs. On May 7th identical legislation was introduced in the House and Senate that would finally put SERS and PSERS on a path to sound finical footing.

The proposed legislation would put ALL new hires into a defined contribution retirement plan (similar to a 401k). In addition, the legislation would make necessary changes to the formula used to calculate future benefits for current employees and cap on the maximum pensionable income.

These changes are critical. Pennsylvania taxpayers cannot afford to continue offering lavish pensions to government employees.

Take a moment to contact your Senators and Representatives. Tell them that we cannot afford lavish pensions for government employees any longer.

Citizens Alliance of Pennsylvania (CAP) is a non-profit organization founded to raise the standard of living of all Pennsylvanians by restoring limited government, economic freedom, and personal responsibility. By empowering the Commonwealth’s employers and taxpayers to break state government’s "Iron Triangle" of career politicians, bureaucrats, and Big Government lobbyists, this restoration will occur and Pennsylvania will prosper.