Ripe for reform: When it comes to pension plans, small is costly
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Like many states, Pennsylvania is faced with the costly problem of financing its public employee pensions. One factor that makes it more expensive here is the multitude of tiny pension plans that cover so many of the state's public workers.
Bloomberg News reports that Pennsylvania has thousands of local retirement plans -- two-thirds of that total cover no more than 10 municipal employees each. One-third of that subset have three or fewer workers.
As with the thousands of boroughs, townships, authorities and other municipal units that abound in the state and make for so much government inefficiency, this kind of small is not beautiful. Setting up and operating such minuscule pension plans comes with a price, usually in the form of higher administration costs and lower returns on assets from the banks that run them.
If the state, which uses a 2 percent tax on out-of-state casualty and fire insurance companies to help subsidize the municipal pensions, would use its leverage to move these workers into larger plans, it could reduce the cost per worker. And, with the state having funneled more than $4 billion to 3,200 local pension funds between 1985 and 2011, that's a lot of leverage.
When the Legislature turns its attention to fixing the state's pension funding problem (not until at least 2013), the presence and cost of so many tiny plans must come in for scrutiny and reform.
First Published August 30, 2012 12:00 am