The State Pension Crisis in Depth - How We Reached This Point, How Governor Corbett is Attempting to Deal with It

Finally, a Governor to Address a Calamity That Has Been Building for Twelve Years

A governor is often damned if he (or she) does, damned if he doesn't, and that it is what is occurring as Governor Corbett lays out his plan to address the $41 billion state employee pension fund shortfall disaster that was dumped in his lap by prior governors and General Assemblies.

To his great credit, I have never heard Mr. Corbett blame Governor Edward Rendell for the problem, but Rendell is the prime culprit as he slept through the building crisis for eight years, allowing it to metastasize without any plan to address it. Perhaps he was too busy plotting the means to get his legislative felon friends out of jail to devote himself to the business of effective governance.

The genesis of the pension crisis occurred in 2001, a year in which there was a surplus in the funds, prompting our state "leaders" to adopt the mantra of, "If you give them the money, they will spend it as if it is burning a hole in their pockets."

Prior to 2001, there was nothing substandard about the pension plans provided to state workers, public school teachers, and legislators. All were in line to receive a generous defined benefit upon retirement, all with a multiplier of 2% per year, which equated to an individual being able to retire at roughly 70% of their final and highest salary after thirty-five years of service. Normal retirement age was considered to be 50 for legislators, 60 for others, what most in the real world would consider early retirement. I recall no push by rank and file workers to boost the superb plan that was in effect at the time. Our "state leaders" saw it differently, as the means to pocket a stunning amount of additional money for themselves had presented itself.

Even Certified Public Accountant and purported conservative John Maher, then and now a Republican State Representative from Upper Saint Clair, concluded that there would be no reason to show restraint, that a pension boost for legislators and for tens of thousands of active state workers and teachers, to be applied retroactively, would not ever cost the taxpayers a dime.  He voted with 175 greedy House colleagues (with only 23 opposed) to boost rank and file workers and public school teachers' pensions by 25% while reserving the lion's share for himself and his cohorts, a 50% boost which for the first time in the history of Pennsylvania, placed the "exalted" elected officials at a higher pension multiplier than all others.  Members of the Senate were equally united in their desire to grab more, voting 41-8 to approve. (Ironically, State Senator Jane Orie, now imprisoned for corruption and forgery convictions, was one of the eight citizen-friendly dissenters. Throughout her terms in office, she  always acted with restraint on matters of whether to enrich herself.) The margin for the pension grab was veto-proof, and Governor Tom Ridge, in one of the greatest mistakes of his tenure, signed the bill.

Then the unforeseen happened, as it always seems to. The nation was attacked by terrorists that year; the stock market endured two major collapses in the ensuing years, and the Commonwealth elected to contribute little or nothing to the pension funds for years, relying on steady employee contributions and the stock market to boost the balances.  The only reliable source of incoming revenue for the funds was the employee contributions, set by law at 6.25% and 7.5% of gross salary depending on one's classification.

Numerous planks have been enacted in order to slow the growth of required state contributions to the pensions funds, but more are needed if the Commonwealth is going to be able to continue providing essential services and funding for initiatives such as education. Governor Corbett proposes to further elongate the period in which state contributions to the pension funds will increase and to decrease the amount of required contributions, to convert new state employees from a defined benefit to a defined pension plan (a government equivalent of the 401k model), to reduce future pension benefits for current employees, and to introduce a pension calculation formula which would somewhat reduce the amount of pension future retirees receive.  There are constitutional and legal precedent questions about whether any changes may be enacted for current employees, questions which likely would be played out in court over a period of years if the governor is able to pass his plan intact, something which is doubtful.

Governor Corbett is the first governor to address the pension fund crisis, the messenger who does not deserve to be shot.  Whether his plan or another is adopted to keep the state from plunging into calamity and/or insolvency, he has provided a starting point for which he deserves praise.  He, unlike his predecessors, is on this issue a leader.

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