I attended Rep. Warren Kampf’s town hall meeting, which focused on the state pension system and its impact on the budgets at the state and local level, with specific attention on the additional burden for our school district. Kampf provided an in-depth overview of the state pension system for state workers and teachers and the need for reform. By the use of a slide presentation, Kampf offered background and history of the state retirement system and a timeline as to how we arrived at the current underfunded pension crisis and proposals for reform.
(To review Kampf’s town hall meeting pension reform slides, click here. There are 19 slides, so it takes a couple of minutes to load.)
What are the reasons that Pennsylvania is now facing a multi-billion dollar public pension crisis? Kampf offered three – benefits, stock market/rate of return and underfunding. The stock market declined in 2001 and then we saw the substantial losses of the market in 2008. The declining rate of return from the stock market had a direct impact onPennsylvania’s public pension plan.
As Kampf explained, the state has no ‘raining day’ fund to help with the pension crisis whereas T/E School District has one of the largest fund balances of all school districts in the state — $30 million. Trying to manage their budgets, the state’s pension crisis has pushed school districts across the state to the edge of the cliff. There was praise to our school district for the good job they have done in spite of the pension crisis.
Many in the audience wanted Harrisburg to ‘fix’ the current pension plan and change it not only for future hires but for those workers currently in the system. Kampf explained that due to the state constitution, that although not legally impossible, it would take years to change the constitution to enact any change affecting state workers vested in the current retirement plan. Realistically speaking, any proposed pension reform legislation should focus on future employees in the system.
Various options for changing the current pension retirement plan were offered and discussed – (1) a defined contribution 401(k) type of plan, (2) a hybrid plan with a defined benefit as a component. This plan sounds like social security and is viewed as a ‘half’ measure; it gets you somewhere but not far enough, and (3) a cash balance plan with mandatory employer contribution shared between shared between the state and school district but was not viewed as solving liability.
According to Kampf, the proposed pension reform legislation that he plans to introduce will suggest a 401(k) type of retirement plan. He was clear that the current retirement plan needs to change – the state needs to stop adding additional workers to the current system. As he says, the bottom line is that there is no easy way out and any pension reform will require discipline.
Kampf understands the pension crisis and appears to have a vision for how the state needs to move forward to correct the problem. The traditional package of retirement benefits for state employees and teachers has become unaffordable and I support pension reform – and sooner rather than later. For future pension benefits, I think that the state should switch solely to a defined-contribution model, akin to a 401(k) model, for new hires. This will help prevent the underfunded-pension liability problem from worsening while the state climbs out of its present multi-billion dollar hole. For the record, I do not support any change for those public workers vested in the current retirement plan; only for new hires.
If Kampf’s proposed legislation for pension reform includes a 401(K) type of retirement plan, his plan will have my support. State and local governments around the country are taking similar steps to reduce retirement costs, often prompting battles with labor unions. Structural and long-term reforms to the pension system could go a long way toward improving the fiscal outlook of state and local government. However, the issue of pension reform could be a political minefield for state legislator. Kampf’s pension reform is probably not going to be him in a favorable position with the teacher’s union (PSERS) or the state employees union (SERS).
Pennsylvania is not alone in its need for pension reform. According to the National Conference of State Legislatures, from 2009 to 2011, 43 states enacted major changes to retirement plans for public employees and teachers. I hope that through pension reform legislation, the burden pension systems place on state budgets and taxpayers can lessen, while still ensuring a stable financial future for government workers.