Public Employee Pensions and Benefits
As state budget negotiations drag on, Gov. Wolf is pointing the finger at Republicans, claiming they have refused to move after he made “concessions on everything." So what compromises are included in these so-called concessions?
To name a few, Wolf’s original spending plan; Wolf’s original plan to increase the income tax; Wolf’s original plan to increase the sales tax; and Wolf’s original plan to borrow $3 billion in pension obligation bonds.
CF’s Matt Brouillette spoke with Gary Sutton on WSBA yesterday to discuss Gov. Wolf’s alleged budget compromises.
Matt explained how Gov. Wolf’s pension plan only includes reforms for 5 percent of current employees. It would do little to upend the destructive status quo, ensuring the pension system's problems are passed onto future generations.
Click here or listen below to hear more.
The Gary Sutton Show airs daily on WSBA 910AM in the York area.
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Instead, he plans on adding to state debt with pension obligation bonds–essentially borrowing money to gamble in the stock market while hoping for a good return.
CF’s Nate Benefield talks with WAEB's Bobby Gunther about Gov. Wolf’s misguided borrowing plans.
Nate explains how pension obligation bonds have a terrible trackrecord. Even Pittsburgh’s Democratic Mayor Bill Peduto has publicly criticized Gov. Wolf’s plan to use pension obligation bonds, saying his city should be the litmus test that proves pension bonds are not a solution.
Gov. Wolf should listen to his constituents who want long-term solutions, not historic tax increases.
Click here or listen below to hear more.
Bobby Gunther is on WAEB News Radio weekdays from 5 a.m. to 10 a.m.
Pennsylvania government unions rely on disproven myths to lobby against pension reform. Their actions, however, demonstrate they don't believe their own snake oil, and offer their employees' the same retirement plans they claim are bad for workers.
Union leaders repeatedly claim that “defined benefit plans cost less to administer” than defined contribution plans (like a 401k).This myth has been obliterated.
In practice, large defined contribution plans actually cost less to administer than the average public sector defined benefit plan, as highlighted in a new study by Josh McGee for the Manhattan Institute.
This should be no surprise to Gov. Tom Wolf, as he’s been complaining about the hundreds of millions of dollars our state pension plans pay in investment fees each year. Arnold points out that fees for the Pennsylvania Public School Employees Retirement System (PSERS) are about triple the average cost of the largest defined contribution plans.
McGee's study also finds that investment return are similar for defined contribution plans, and that most defined contribution plans offer annuities—providing predictable annual payments during retirement.
Government union leaders deny these facts and disparage any reform to our broken pension system. But there’s a catch—those same unions offer a 401k style plan to their employees.
Our release today demonstrates union hypocrisy regarding pension reform. PSEA, SEIU, UFCW, AFSME, AFL-CIO, and the PFT all publicly oppose putting public employees into a 401k-style plan or a hybrid, yet they all offer a 401k or hybrid to union employees.
These hybrid models, which include both a defined contribution and a defined benefit component, are exactly what union leaders are lobbying against in both SB 1 and Gov. Wolf’s proposed “compromise.” Without fail, each of the seven union giants provides retirement plans similar to the ones they’ve called too “risky” for public employees.
The motto of union leadership is "do what I say, not what I do."
|What Do Pennsylvania Government Unions Offer their Employees?|
|Government union leaders have opposed putting new state employees and school teachers into a "defined-contribution" plan (like a 401k) or a "hybrid plan" that includes part of a defined-contribution model, despite the fact nearly all the private sector has made this conversion.
However, major public sector union offer their employees a defined-contribution retirement plan or hybrid.
|Union||PSEA||SEIU||UFCW 1776||AFSCME 13||AFT-PA||AFL-CIO Pennsylvania||Philadelphia Federation of Teachers|
|Defined Contribution Plan Started||1997||1999||1985||1984||1972 & 2013||2014||1979 & 1997|
|Also has Defined-Benefit Plan?||Yes||Yes||??||Yes*||??||Yes*||??|
|* via national affiliate
Source: U.S. Department of Labor form 5500 searchable database https://www.efast.dol.gov/portal/app/disseminate?execution=e1s1
Legislative leaders have rightly rejected a so-called pension reform "compromise," a plan that fails to address the problems in our pension system and continues to put our kids and grandkids on the hook for our pension liabilities.
It's that burden on future generations that prompted Jim, a teacher in Lawrence County, to speak out.
I chose teaching because I enjoy interacting with students and helping them learn. My science classes show students that certain actions yield predictable results. With this in mind, I am particularly concerned about Pennsylvania’s current retirement system for state employees, which includes public school teachers.
Our pension system is underwater by more than $50 billion and, without change, will sink billions deeper. While this is bad news for educators, it’s downright frightening for parents and catastrophic for our Commonwealth.
My wife and I have five wonderful daughters. We’ve raised them to be responsible and self-sufficient. Only a hypocrite would ask them to deprive their children - my grandchildren - in order to pay for my retirement.
The truth is, pensions were originally offered with good intent: to retain quality state employees when higher pay was available in the private sector. Yet, according to 2014 data from the Bureau of Labor Statistics, the average salary of Pennsylvania state employees is higher than those of private sector employees. The original justification for defined pensions is now moot.
The pension crisis is not another political soapbox issue. I know what it’s like to be faced with the unexpected. In 2008 when the economic downturn hit, I was working as a patent attorney and had my own pension plan. The high cost of this pension compelled me to terminate my own pension - I just couldn’t afford it. At the same time, a teaching opportunity arose that allowed me to continue providing for my family’s future.
The vast majority of private companies have realized the dangers of defined benefit pension plans and have switched to defined contribution plans, such as a 401(k). Unlike pensions, employees legally own the money in a 401(k) plan. Investments move with the employee, can be accessed before retirement, can compensate for inflation, can be left to one’s children, and exist independently of any employer’s fiscal status.
We must fix our broken pension system. The future retirement of state employees should not be dictated by politicians, and the faulty formula will continue to produce abysmal results. Passing the costs of today’s broken system to our children is morally unacceptable.
Gov. Wolf proposed a new "compromise" on pensions and the budget last week, according to news reports.
Here is what that compromise includes:
- A defined contribution plan for new employees, but only on salary greater than $100,000—this applies to a small portion of salary for about 5 percent of employees. Everyone under that level (and all salary below $100,000) would remain in the current defined-benefit pension plan.
- Provisions against pension spiking, changes to “lump sum withdrawal calculations” and shared risk provisions, similar to those in SB 1 (the pension reform bill vetoed by Gov. Wolf).
- Wolf’s original plan to borrow $3 billion in pension obligation bonds, paid off at the cost of $5.5 billion over 30 years to invest in the stock market—a plan panned by Pittsburgh Mayor Bill Peduto.
- Wolf’s original plan to keep the government monopoly on state liquor stores, but “modernize” them—which would include raising prices on consumers.
- Wolf’s original spending plan.
- Wolf’s original plan to increase the income tax.
- Wolf’s original plan to increase the sales tax.
- Wolf’s original plan to tax day care, nursing home care, funerals, college meal plans, and dozens of other items.
- Wolf’s plan to tax natural gas, resulting in higher energy costs on consumers.
- Wolf’s original plan to retroactively increase taxes on bank savings.
- Wolf’s original plan to increase taxes on tobacco and e-cigarettes.
You can tell your lawmakers what you think of this compromise plan here.
This week, Pittsburgh Mayor Bill Peduto criticized Gov. Wolf’s plan to sell $3 billion in pension obligation bonds. In a meeting with editors and reporters from the Pittsburgh Tribune-Review, the city’s Democratic mayor explained that this same plan nearly led Pittsburgh into bankruptcy and that:
“One out of every $5 we spend every year just goes back to paying those old bonds. Not only that, but our debt ratio is higher than New York City's when they went bankrupt.”
With Pittsburgh facing a $1.2 billion pension obligation, Peduto said “[t]here has to be a new mechanism from the state in how pensions are paid.”
Luckily, there is.
Peduto, along with a number of mayors and local government officials, supports state legislation that would reform the municipal pension plans. Specifically, these bills would put new employees into a 401k-style plan, and move pensions out of the collective bargaining process. There is a growing bipartisan support for municipal pension reform across the commonwealth.
And Peduto is far from alone in criticizing Gov. Wolf's ill-conceived pension obligation bond plan. Financial experts and rating agencies across the country have warned against using pension bonds to try to repay debt with more debt. Many cities, like Pittsburgh, and several states have tried to use pension bonds to get out of a bad financial situation—it hasn't worked yet.
Gov. Tom Wolf’s veto pen may be running out of ink.
In the span of one week, Pennsylvania’s “different kind of governor” vetoed a no-tax-hike budget, liquor privatization, the school code and the fiscal code. He is currently debating whether or not to veto pension reform, as well. But that’s not an exhaustive list.
By vetoing the budget bill, Gov. Wolf turned down a $100 million increase for Basic Education, a $20 million increase for Special Education, a $30 million increase for early education, and $50 million more for higher education. He even vetoed the implementation of a new, bipartisan school funding formula—particularly curious since the formula, which would distribute funds based on student need, has been universally applauded.
At every turn, Gov. Wolf has embraced and perpetuated the myth that Pennsylvania schools are underfunded and suffering from a phony “billion dollar cut.” The administration conveniently ignores the fact that Pennsylvania spending per student ranks 10th in the country, and total school spending is at an all-time high. Seemingly nothing can deter Gov. Wolf on his quest to raise taxes—in the form of income, sales, and severance taxes—on families and small businesses.
Rather than seek common ground or areas of compromise, the governor insists on a budget—his own—that was voted down 0-193.
Thankfully for working families who would be burdened by Wolf’s tax increase, even 4 billion vetoes cannot enact $4 billion in new taxes.
On Tuesday, a task force spearheaded by Auditor General Eugene DePasquale released its recommendation for municipal pension reform. The report recommends, among other things, more transparency and accountability in municipal pensions and taking pensions out of the collective bargaining process.
This report is the latest in a string of bipartisan efforts to tackle the municipal pension problem.
Last week, the Senate Finance Committee advanced SB 755, legislation that would indeed take pensions out of collective bargaining and put all new public safety employees into a defined contribution plan.
SB 755 has the support of the Commonwealth Foundation along with the Coalition for Sustainable Communities—a coalition of local officials and business leaders. But for the first time, the legislation received Democratic legislative support. Sen. Art Haywood, from Montgomery County and a former township commissioner, joined with Republicans to advance the bill.
Other Democratic Senators also indicated they might be open to supporting the final legislation.
The panel's ranking Democrat, Sen. John Blake, D-22, Archbald, voted against the bill as did other caucus members with one exception. But Mr. Blake said he’s keeping the option of eventually supporting the bill open, depending on what a pending report from Gov. Tom Wolf’s task force on municipal pensions recommends.
Mr. Blake said he’s concerned that switching to a defined-contribution plan could ultimately lead to more pension debt. He noted that Carbondale Mayor Justin Taylor supports the bill.
Sen. John Yudichak, D-14, Plymouth Twp., said he plans to keep an open mind about municipal pension changes if the bill reaches the Senate floor. He said pension changes are one reason why Nanticoke is ready to leave Act 47 distressed municipality status.
Of course, municipal pension reform has been a top priority for Democratic mayors from across the commonwealth for some time. As the Pittsburgh Post-Gazette reports:
[Pittsburgh] Mayor Bill Peduto has pushed hard this year for overhauling municipal pensions, joining nine other Democratic mayors in chastising Democratic legislators for what they called a failure to act, and has met with the governor and legislators on the issue.
"His message has been that pension reform is the number one priority for this city and every other one in the state," said Tim McNulty, Mr. Peduto’s spokesman.
Mr. Peduto and other proponents have said looming election cycles and the heavy political influence of public safety unions may make future efforts to overhaul the system difficult.
"It's going to be a hard reach to do state pension reform this year and municipal pension reform next year," said Lancaster Mayor J. Richard Gray.
While budget discussions continue under the Capitol dome, addressing municipal pensions is no less urgent. And given the bipartisan support behind this effort, the time is ripe.
Yesterday, the General Assembly passed landmark legislation to free homeowners from skyrocketing property taxes, make school budgets go further, and protect public employees from politics.
SB 1 bill reforms the pension system by placing new state employees and school teachers in a defined-contribution retirement plan, similar to a 401(k). The bill passed the House of Representatives 106 to 89 and the Senate concurred with a 29 to 20 vote.
Please take a minute to thank your lawmakers for working to get politics out of pensions.
For years, public servants' retirement benefits have been at the mercy of political whims, with past legislatures making empty promises. Pension underfunding, along with market downswings, have left taxpayers with a $53 billion pension liability and skyrocketing local property taxes (an extra $600 per homeowner since 2008-09).
SB 1 not only stops the bleeding, but also benefits public employees by giving them stability, portability, and protection from political manipulation through a defined-contribution plan. The bill also provides employees with a cash-balance plan, adjusts the calculation of lump sum withdrawals to make them revenue neutral, and reduces "pension spiking" practices. SB 1 also puts lawmakers in the same defined-contribution plan as new employees, once they are re-elected.
The bill would save about $11 billion over the long-term.
Meanwhile, Governor Wolf continues to insist we do not have a pension crisis. A veto would be a huge blow to the commonwealth, paving the way for future credit downgrades, education cuts, and tax hikes.
One of the specious arguments used to thwart pension reform centers on the average benefits of retirees. Opponents of reform claim the "average pension benefit" is around $25,000 annually. But a deeper examination of this figure tells a different story.
The "average" retiree didn’t work in the school system her entire career. And the "average pension" is diminished by employees taking a "lump sum withdrawal" upon retirement. Data from the Public School Employees Retirement System (PSERS) show teachers who worked their entire career in education have a much better retirement plan.
- Q: What is the average pension for a PSERS retiree with 30-34 years of experience?
- A: $38,232
- Q: What is the average pension for a retiree with 35-39 years of experience?
- A: $50,176
- Q: What is the average pension for a retiree with 40 or more of experience?
- A: $53,377
All of these totals are after retirees take their lump sum withdrawal, which is comprised of employee contributions plus interest. If employees opt to withdraw the lump sum, often amounting to several hundred thousand dollars, they then receive a lower annual pension payment. Almost all employees choose this option.
This withdrawal option (called option 4) is not available for employees hired after 2010. SB1, the current reform pension bill making its way through the General Assembly, would change the Option 4 formula, as it costs taxpayers more for employees who take the lump sum over the higher annual pension. The actuarial note for SB 1 released on Monday shows changing this formula would save an estimated $6.1 billion in pension contributions over 30 years.
This half-truth misleads for another reason—it implies shifting to a defined contribution plan hurts workers. That couldn’t be further from the truth.
As Matt pointed out in his testimony on SB 1, most new teachers will never be vested in their pension. In contrast, a defined contribution plan offers teachers and state workers a predictable, portable and sustainable retirement plan—one which is better for most young workers.
Of course, the most important reason to shift to a defined contribution plan is to get politics out of pensions—and end the cycle of overpromising and underfunding pensions.
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