The pension crisis: Gov. Corbett must signal the reforms he wants

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With the release of a report Monday on the condition of state employee pension funds, Gov. Tom Corbett kicked off an important conversation that is long overdue. It will be up to him to determine whether the discussion leads nowhere or to a long-term resolution of Pennsylvania's long-simmering pension funding crisis.

A lesson from the past year is that Republican lawmakers aren't going to enact major reforms unless Mr. Corbett tells them what he wants to see in proposed legislation. That's what has occurred with another funding dilemma -- how to pay for much-needed road and bridge maintenance and repairs. Despite advice from a panel of experts and support in both political parties, the Republicans, who hold majorities in both the state House and Senate, did not advance the group's recommendations because they were waiting for signals from the governor.

Regarding public employee pension plans -- a huge problem with a $41 billion gap between their assets and liabilities -- Mr. Corbett has said he will address the issue when he presents his 2013-14 budget proposal in February. Monday's report, prepared by the state Office of the Budget, included a few hints of what is to come.

The report said any reform of pension plans for state and school district employees should not involve tax increases, cuts for retirees or changes to benefits already accrued by current employees.

It also warned against pushing the costs further into the future, which was the end result of pension changes enacted in 2010. That legislation reduced how much the state and school districts had to contribute to pension funds in the short term only, while also decreasing the level of benefits and increasing the retirement age for new employees. One of the authors of that law said limiting reforms to future employees won't be enough.

Proposals affecting current workers is where the real fight will come. It is virtually certain that changes affecting current employees will trigger significant opposition from their unions as well as legal challenges, because rules for pensions, benefit levels and the amounts that employees and employers must contribute are set by law.

Although the state is projecting revenue growth next year of nearly $819 million, pension costs are expected to eat up 62 percent, an estimated $511 million that won't be available for other programs and services unless there are changes to the pension funds. Similar fallout will impact school districts, and the sums are projected to increase significantly for at least five years.

If it is the intention of the Corbett administration to get out ahead of the pension problem sooner rather than later, it is going to have to work quickly, crafting recommendations that can win approval from the Legislature, in anticipation of the possibility of prolonged litigation after the fact.

It won't be easy, but Pennsylvania is not alone. According to the report, eight states have made structural changes to their retirement plans in 2012 alone. State leaders face the tough challenge of reworking the pension plans in a way that is fair for public employees and for the taxpayers of Pennsylvania.



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