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Did Legislation in 2010 Fix the Pension Crisis?

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This post originally ran in Commonwealth Foundation’s PolicyBlog. Commonwealth Foundation used to run Free to Teach. For more on pensions, see the timeline of the crisis and common myths vs. facts.

By Glen Grell
PA State Representative

The Commonwealth operates two public pension programs: the State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS). The funding issues surrounding these programs are complex, but as it stands now, these systems together are operating with an unfunded liability of at least $41 billon – and growing.

Act 120, of which I was one of the authors, was signed into law in 2010. The legislation established a new plan design for state and school employees coming into service from 2011 onward. It also offered short-term relief to school district budgets by applying “rate collars” to the required annual employer contributions to the pension funds.

Act 120 was an important first step in addressing the funding crisis facing SERS and PSERS. But it was only a first step. It was never represented as a long-term solution to our public pension funding issues. Unfortunately, some people do not realize that Act 120 does not address the larger problems with our pension systems. They have begun urging lawmakers to adopt no further pension reforms and, in their words, “let Act 120 work.”

The truth is that if we just “let Act 120 work,” the school districts in our area and across the Commonwealth will face substantial increases in their required employer contributions to PSERS. These contribution increases will require districts to make difficult decisions to balance their budgets, resulting either in substantial property tax increases, severe cuts to programs or both. It would be irresponsible to sit idly by and “let Act 120 work.” To put this into perspective, consider the three school districts I represent.

The current employer contribution for PSERS in the Camp Hill School District is $527,329. If we “let Act 120 work,” that contribution soars next year to $746,000. By the 2017-18 school year, the employer contribution skyrockets to $1,434,000.

For the Cumberland Valley School District, this year’s PSERS contribution is just over $2.9 million. Next year under the Act 120 provisions, the amount increases to $4.1 million. By 2018, the district would be required to disburse more than $8 million to the PSERS fund.

The present PSERS contribution for the East Pennsboro Area School District is $932,233. Next year, it will rise to nearly $1.4 million, and by 2018, the district would be paying $2,657,000 into the pension system.

As you can see, “letting Act 120 work” would have major adverse consequences for our schools and their students and it is not a viable long-term option. It is necessary to craft a comprehensive approach to pension reform that addresses our unfunded liability without doing damage to the reasonable retirement expectations of current employees. In the coming weeks you may hear me being critical of Governor Corbett’s proposal and offering a different, collaborative approach to address this important issue, because I believe doing nothing is not an option.

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