Sunlight is Always Welcome
Pennsylvania’s two state-wide public pension systems are deeply underfunded. They only have about sixty cents in assets available for each dollar of promised payouts, which means they are at least $70 billion short. That the problem won’t be easily fixed is an understatement, but legislators have proposed some helpful first steps. The Commonwealth Foundation commends Representatives Garth Everett, Lou Schmidt, Brett Miller, and Dawn Keefer for a package of bills that aim to improve pension fund transparency. Rep. Frank Ryan has proposed a worthy bill that addresses pensions alongside other financial problems.
- HB 1963 (Everett, R-Lycoming/Union) would amend the State and Public School Employees’ retirement codes to end the application of collared employer contribution rates. SERS and PSERS set a contribution rate that employers must pay into the systems each year. So-called collars prevent the contribution rate from jumping but they have exacerbated the underfunding problem.
- HB 1995 (Ryan, R-Lebanon) would create a bipartisan commission to study all of the state’s liabilities holistically. Its mandate would include pensions, other post-employment retirement benefits, local government finances and physical infrastructure. The bill is a welcome acknowledgement that the state’s financial problems are interlinked. A dollar more spent on pensions is one less dollar available for infrastructure, for example.
- HB 1964 (Miller, R-Lancaster) would expand public access to pension investment records in accord with the Institutional Limited Partners Association's (ILPA) Fee Transparency Initiative, a national effort to establish standards for investment fee reporting.
- HB 1962 (Keefer, R-York/Cumberland) would require annual actuarial stress tests of each pension system and would require the Independent Fiscal Office to summarize the results.
- HB 1961 (Schmidt, R-Blair) would require the State Employees’ Retirement System (SERS) to report investment performance for the one year interval from July through June, the same interval as the government fiscal year. This would enable comparison with its sister system PSERS and with other public entities.
Improved transparency will inform and motivate the real work of reform. Defined benefit pensions, whereby the state delivers a set of fixed post-retirement payments for life, must be phased out for younger workers. The state should instead offer defined contribution pensions whereby employees earn the market rate of return on a mix of low-fee investment funds they select from a menu. Defined contribution plans offer several advantages including a choice of investment risk level and portability across jobs. Many state workers are switching voluntarily. Only through continued reform can the state’s books finally be balanced and public retirees’ benefits be made secure.