Pension Reform: PA Looks to Avoid Underfunding Trap

Member Group : Center Square

(The Center Square) – A pension reform bill would clean up the language in a Pennsylvania statute that had previously suppressed state contributions, allowing pension funds to go underfunded.

HB1578, introduced by Rep. Dawn Keefer, R-York/Cumberland, removes collar provisions from state pension law, which had artificially suppressed the Annual Required Contributions paid into pension funds.

“The statutory employer contribution collars which artificially suppressed the SERS and PSERS contribution rates for a number of years are no longer in effect,” Keefer wrote in a legislative memo. “However, statutory language implementing the collars remains in both the SERS and PSERS codes.”

In previous years, Pennsylvania hadn’t made its full ARC payment thanks to the strength of market gains, Keefer said. Though the state has returned to making the required payments, she wants to ensure poor fiscal habits cannot resume in the future.

There’s good reason for preventing those bad habits from returning – the commonwealth lags behind the rest of the nation in funding its pension plans. Pennsylvania only funded 56% of its public pension plans in fiscal year 2019, according to the Tax Foundation, ranking 41st nationally.

Some of the impetus for reform comes from a wide-ranging 2018 report of the Public Pension Management and Asset Investment Review Commission from the Pennsylvania Treasurer’s Office. The report offered recommendations to the governor and General Assembly on keeping the public pension system sound and avoiding major economic disruptions.

“The numbers are difficult to comprehend and the effect of over $60 billion in pension debt manifests itself in much more than dollars and cents,” the report noted. “Core government services are affected; from protecting our most vulnerable and aging citizens to maintaining our highways and funding our schools. The resulting tax burden on property owners, families and businesses is substantial.”

Keefer’s bill is one effort to tackle pension reform in smaller pieces, rather than try to fix all problems in one fell swoop. The removal of collar provisions, she expects, shouldn’t be too controversial.

“This one is something we’re already doing,” she said. “It’s not gonna cost us any more money to do this.”

Staff Reporter

Anthony Hennen is a reporter for The Center Square. Previously, he worked for Philadelphia Weekly and the James G. Martin Center for Academic Renewal. He is managing editor of Expatalachians, a journalism project focused on the Appalachian region.