Pension system switch would cost more
TO THE EDITORS:
Rep. Ryan Aument deserves credit for his desire to address the public employee pension issue. As a public worker who has consistently contributed 7.5 percent of my salary, paycheck after paycheck, I realize this is a pressing financial concern for the commonwealth.
Rep. Aument gets most of the facts right in his Jan. 20 op-ed column. Unfortunately, his suggestion to move new employees into a 401(k)-type defined-contribution system would make the state's pension debt worse. Alaska and West Virginia failed when they attempted a similar move.
Alaska passed legislation to close its teacher plan to new hires when the employer pension rate hit 16 percent in 2005. The law was passed to save taxpayer money, but the employer contribution rate in Alaska today is now 53.02 percent. Conversion to a 401(k)-type plan is no panacea because it does not allow the pension system to escape debts already incurred.
Whenever an existing defined-benefit pension plan is closed to new employees, the payroll base for the plan begins to erode until it eventually reaches zero. Since the fund must have cash on hand to pay for all benefits when the last person retires, the fund's investment practices must become more conservative each year, and that, in turn, causes the employer contribution rate to soar even higher.
In 2010, teachers, nurses and law enforcement officers agreed to reduce pension benefits and raise the retirement age in order to save Pennsylvania taxpayers $33 billion over the next 30 years. Under the 2010 law, the employer cost for new and recently hired employees going forward (that's the cost to taxpayers split between the commonwealth and school districts for all new employees) is only 2.2 percent of salary.
Any alternative proposal would have to be lower than that 2.2 percent figure to justify any change to the present system, and that's highly unlikely.