Stability hard to find in state pension fund

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A dozen years ago when America's Largest Full-Time State Legislature voted itself and the state's workers big-time pension increases, everything seemed rosy.

"It's not a raid on any taxpayer money," Mike Manzo said in April 2001. "It is funded by the surplus in the pension fund and increased contributions from state employees, lawmakers and teachers.''

A lot of people thought that then. A lot has changed since. Mr. Manzo, for instance, has gone from being the Pennsylvania House minority leader's chief of staff to serving a prison sentence on corruption charges. His former boss, Bill DeWeese, D-Waynesburg, is likewise doing time.

The charges against them had nothing to do with pensions, but the corruption and the belief that pensions were sitting pretty might be described with the same phrase: spectacularly wrong. Gov. Tom Corbett is making dire predictions that unless the system is overhauled -- for the second time in three years -- the bill that hits taxpayers in four years will be measured in the billions.

House Minority Leader Frank Dermody, D-Oakmont, said the governor is pointing his finger in the wrong direction and this is no crisis. The pension fund will be fine, he says, if the state simply meets its obligations and lets the reforms of a few years ago run their course. State workers have never failed to chip in their share.

Mr. Dermody and Mr. Corbett can each point to charts and numbers supporting his view, but the only sure thing is that nobody's numbers can be completely trusted. Over the past 30 years, the state pension plan has bounced from crisis to flush times to crisis, and the consensus at any given time is sure to be wrong in a few years.

Take the moves that helped create the current mess. In 2001 as now, Republicans controlled both houses and the governor's mansion, though then the Democrats were happy to play nice on pensions. A retirement sweetener passed the House overwhelmingly, with no debate, in five minutes. An hour later, the Senate passed it 41-8, with no discussion. Gov. Tom Ridge signed it quickly.

State workers and teachers got a 25 percent increase in their retirement checks. State lawmakers got a 50 percent boost. (But why should they get any pension at all? Seriously, this shouldn't be a lifetime job, and so a defined contribution plan like a 401(k) should be enough.)

Editorials railed against the "stealth pension increase,'' but even the critics didn't think the deal would cost the state or school districts anything for 10 years. The system was fully funded, lawmakers and teachers began contributing more and the investments were doing great.

Then came the dot-com crash. Then came that little thing we call the global recession of 2008. Pension investments no longer did great. So in 2010, the Legislature rolled back some of what it had done nine years before.

The normal retirement age increased by five years, from 60 to 65 for most people. (For legislators themselves, it increased from a ridiculous 50 to a semi-ridiculous 55.) The vesting period for pension eligibility grew from five years of employment to 10. Benefits for new employees were also reduced from 2.5 percent of salary for each year of service to 2 percent. It dropped from 3 to 2 percent for incoming legislators.

All that helped, and should eventually save billions, but not right away. Hence the big contributions ahead that are due from the employer, better known as taxpayers.

It has to be said that state workers and teachers kept paying their full share into the pension system all this time -- even when the state cut or stopped payments for a year or two.

Mr. Corbett says he blames neither the teachers nor state workers for this mess, but a mess it is, and he's proposing a 401(k)-type defined contribution plan for new employees. Mr. Dermody says the state would be better able to meet its pension obligations if Mr. Corbett hadn't cut state revenue by pushing big corporate tax breaks.

This isn't the same General Assembly it was in 2001. About three-quarters of House members and more than half the senators are new since then. My advice to the newbies: If one of the old hands says, "The pensions will be fine if we just do this,'' don't believe it.


Brian O'Neill: or 412-263-1947.


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