Scarnati: ‘Obsolete’ state pension must go
By Joseph Bell
St. Marys, Pa. – A partisan Legislature still appears to stand in the way of state pension reform as “revenues in the Commonwealth continue to lag behind growing expenses,” one such expense being an “unsustainable” pension plan, according to Senate President Pro Tempore Joe Scarnati (R-Jefferson).
Rising pension costs are expected to hover around $2 billion for next year’s budget, up from $1.4 billion for fiscal year 2013.
Representing the 25th District, Scarnati on Thursday morning said it appears the system is broke.
“The current system is not sustainable,” he said. “Back in 2001, I had been in the Senate for one year and the pension increase that was pushed then by Governor [Tom] Ridge was put before the Legislature for vote and at that time I voted for it. All the actuaries said everything was good and it was sustainable but I did not take the pension increase-- I’m under the old pension system and I’ve gotten some criticism for that.
“Some people have said ‘Scarnati is like everybody else out there, he’s never going to do anything,’ but I have some standing in putting my hand up and saying ‘We’re going to do something about this pension.’”
The state’s two public pension plans calls for a 50/50 split between state government and 500-plus public school districts for public school employees; the state workers’ pension plan is funded entirely at the state level.
A package of bills sponsored last year by Scarnati and GOP leaders called for all future hires to have a new retirement plan similar to 401(k) plans.
“I think clearly what voters and taxpayers want to see is a shift from this unique defined benefit plan that state workers have-- including legislators-- to what [taxpayers and voters] are used to, just a simple 401k plan,” Scarnati said. “I think that’s something that’s very simple, easy and understandable, so that’s what I’m pushing.”
Scarnati is quite clear that the bills reflect future hires but not those currently in the system.
“It’s not about the existing employees because you get yourself into a possible lawsuit and legal challenges when you start talking about current employees,” he said. “I think that when new legislators are elected, they should go into a new pension system and move them out of this current one.”
The current system for state workers is a “defined benefit plan,” one that “guarantees a benefit to that worker” at a certain level when they retire. The plan does not, however, take into consideration whether or not the investments paid off.
“Somebody with a 401(k)-- I myself have a 401(k), and what we’re used to is making our annual contributions to our pension plans and sometimes the investments went up, sometimes they went down, but at the end of the day that balance is what I have,” Scarnati said. “I didn’t get something that was artificially set as a defined benefit plan. The stock market dropped five years or so ago, and it wreaked havoc on this pension plan that we have, and right now we have close to a $50 billion unfunded liability.”
It the trends continue with no resolution, the unfunded liability could rise to over $65 billion over the next few years; with a figure that high, the debt would take well over 35 years to pay off.
“I go back to the state budget and I see expenses are growing faster than revenues, and the deficit that we’re looking at is carrying over identical items from last year to this year, and that will cost us between $1.2 to $1.4 billion more, but half of that, about $600 million of that, is pension costs. We can’t keep doing that,” Scarnati said. “Sure we can do nothing and just pay the bill, but what will that mean: We’ll have to make choices like do we want to not give more money to our schools?… and I do.”
Without proper funding and a sustainable pension plan, Scarnati said funding for higher education, the state’s elderly, and assistance for the truly needy and disadvantaged will be in jeopardy.
“We have to make a choice, either those who stand up and say ‘We don’t have to do anything,’ or you have to start moving this system out of here,” Scarnati said. “If not then we’re not going to be able to do basic functions of government like fund our schools, higher education opportunities so that when students come out of college they’re not so high in debt that they can’t afford to do it.
“Some people look at me and say ‘He’s in Harrisburg all the time, he doesn’t live this.’ No, I live in Brockway. I’m in Harrisburg two nights a week probably two weeks a month. I’m here, I have a kid in college, and I live a real life. I look at the stresses and demands on families and this isn’t fair.
“It’s going to take some political courage to fix this and there will be legislators opposed to this. Yes I did vote for the pension plan because the actuaries said it was OK but I didn’t take it, and I didn’t think it was right to take it. I had just been elected, I signed up for a pension plan and that plan was fine by me. The actuaries’ studies said we could sustain this and help current school teachers and the retirees, and it’s still a big issue.”