Corbett's Pension Plan would make the State's finances WORSE (switch for purely ideological reasons)

[JPZenger]

http://www.mcall.com/news/nationworld/pennsylvania/mc-pa-corbett-pension-reform-021-20130223,0,411170.story

During the Ridge Administration, the Legislature increased their own pensions by 50% and the pensions of others by 25%. (By the way, legislators are vested much quicker than anyone else). Then, they authorized the State NOT PAYING ANYTHING into the pension accounts for a few years. Meanwhile, the State employees and teachers continued to pay their share each year.

Now the pension accounts are severely underfunded. Under the Rendell Administration, pensions were decreased and vesting was lengthened for new employees. However, the PA. courts have ruled that pensions cannot be reduced for current employees. That case was mainly aimed at benefits that have already been earned. Corbett is now proposing to reduce benefits for current employees that have not yet been earned. That will face a court challenge, but the result in uncertain.

However, the big problem is that Corbett wants to switch all new state employees to individual retirement accounts. He apparently is proposing this for purely ideological reasons, because it will GREATLY INCREASE THE UNDERFUNDING OF THE PENSION SYSTEM. No state has ever made the switch while their accounts were severely underfunded. The reason is simple - the funds from the new employees are needed to pay the benefits of the current retirees. If the new revenues from the new employees are segregated from the pension system, there is a huge shortfall for the next couple decades.

Excerpts of the above article:

"If the debt wasn't so large, the state could more easily phase out SERS and PSERS, said James L. McAneny, executive director of the Public Employee Retirement Commission, which monitors municipal and state retirement funds and legislation that affects them.

New money from new employees helps cover the pension obligations to 698,363 active and retired members in both systems, he said. By eliminating that new infusion of cash, as Corbett has proposed, the plans would risk having their credit downgraded by bond agencies that may lose confidence in the state's ability to make good on its payments, McAneny said. And that, in turn, could force the state to speed up the repayment schedule because it would have to calculate those payments on a shorter time frame, he said. That time frame would be based on a 15-year average of the remaining worklife of SERS and PSERS employees instead of 30 years.

"If I can't pay it off in 30 years, which I'm doing now, how am I going to pay it off in 15?" he said."

[Curmudgeoness]

1. This is the same thinking used regarding privatized SS accounts.

I don't know where these people got their economics degrees----a Cracker Jack box comes to mind.

The delusions of these GOP privatization champions are amazing. I really do not know how they can propose these changes with a straight face.

[JPZenger]

2. PA. State Treasurer Warns of Higher Costs from Corbett's Pension Plan

http://readingeagle.com/article.aspx?id=455328