The $52 Billion Pension Deferral Plan

Legislation that would implement Gov. Rendell’s deferral of payment on state pension obligations is under debate in Pennsylvania House. HB 2497 would limit the annual increased in the state pension contribution rate – set to “spike” in 2012-13, and remain high and increase after. This would lower state and school district taxpayer contributions to the pension systems (SERS and PSERS) for a few years, then require higher contributions in later years.

The plan does nothing to reduce costs, even marginally, and certainly does not represent pension reform. (That is why, you may have noticed, the PSEA has not raised a single objection to the proposed deferral of pension payments; despite their demonizing of past “underpayments” the PSEA has been complicit in the pension debacle, including support deferral of pension payments).

An actuarial note attached to the bill by PERC (the PA Public Employee Retirement Commission) should put the brakes on this legislation, however. PERC estimates that the higher costs in later year will far outweigh the contribution reductions in earlier years – to the tune of an astonishing $52 billion over 30 years. That is an additional $52 billion that taxpayers – through higher state and school property taxes – will have to fork over to pay off the pension obligations, and this assumes an 8% annual return on investment.