HARRISBURG -- Faced with a $41 billion unfunded pension liability, the Corbett administration Monday set the stage for negotiations on overhauling the state's retirement systems with a report suggesting current employees could face cuts in benefits they have not yet accrued.
The imbalance between the liabilities and assets of the two state pension systems -- one for state employees and the other for public school employees -- gives them a combined funding ratio of just under 68 percent, well below the 80 percent that is considered healthy, according to the report released Monday by the state Office of the Budget. Gov. Tom Corbett has spoken of the urgency of overhauling the retirement systems, and the report says he intends to address pensions as part of his budget proposal for the upcoming fiscal year, which begins July 1.
The report lists several basic positions the administration will bring to pension overhaul: no tax increases, no loss to retirees, no change to benefits already earned by current employees. But the administration makes no such promise about the future earnings of current employees.
"Given the current state of both pension systems, it may be necessary to explore changes to prospective benefits for all current public and school district employees," the report says.
Rep. Glen Grell, R-Cumberland, was among a group of lawmakers who put together a 2010 pension overhaul law that made changes, like an increased retirement age, for new hires. He said limiting additional changes to future employees cannot resolve the system's imbalance.
"If all you're going to do is put another new plan in effect for new employees, that would have a very minimal, if any, effect on the unfunded liability," Mr. Grell said. "There has to be something more substantial -- either in the form of benefits or contributions or other revenues -- if you're going to have an effect on the unfunded liability."
Any move to tweak benefits for current workers is sure to hit resistance from labor unions. David Fillman -- executive director of the statewide council of the American Federation of State, County and Municipal Employees -- said Pennsylvania court decisions prevent the state from changing retirement terms for current workers.
"Everybody knows there's not really much we can do with the current employees," Mr. Fillman said. He said the state should consider increases to revenue as it looks to pay its pension and education bills.
Rep. Joe Markosek of Monroeville, the ranking Democrat on the Appropriations Committee, likewise said current workers are immune from benefits changes.
"Pennsylvania case law prohibits benefits changes for existing employees," he said in a written response to questions. "Remember, public employees have consistently fulfilled their contractual obligation by contributing 100 percent of their share toward the pension system."
The report said Pennsylvania could consider pension approaches taken by other states, including increasing employee contributions, raising the retirement age and changing how the retirement benefit is calculated.
Karen Langley: firstname.lastname@example.org or 1-717-787-2141.