MILLER: Pension reform: not much of a reform

By Dick Miller

WE.CONNECT.DOTS: All the ballyhoo about our state government leaders finally achieving pension reform this week in Harrisburg failed to answer one issue.

Has Trump-type governance finally floated ashore to the banks of the Susquehanna?  Or was the latest style democracy already in place in the hinterlands, awaiting a populist like our new President to carry it to the federal level?

Even the powerful unions that represent state employees and local public-school teachers withdrew their opposition to Senate Bill 01.  Party leaders crowed over the first bi-partisan solution to a major issue in perhaps the current decade.

What a crock?

Here are the facts.

Employer (the state government) pension contributions are seldom determined by actuarial tables like in the real world.  Rather, lawmakers and governors penciled in whatever the low amount needed to prevent an increase in taxes.

Collectively, 500 school boards meekly went along with the annual low assessments (the local share).  The locals wanted to keep property taxes from raising higher than already happening.

Every so often, most notably in 2001, the misnamed guardians of our tax dollars in Harrisburg would do a “pension grab.”  That is when legislators — again awash in the gush of non-partisanship — boost their retirement benefits.

Governors go along with the upgrade on behalf of their workers.  Judges are always included because of the collusion often needed between the branches to pull off another stretch interpretation of the constitution.

A series of these slight-of-pension-hands happened in the new century.  When Tom Ridge, Republican, was governor in 2001 and Ed Rendell, Democrat, in 2004, huge grabs were pulled off.  Another attempt — mostly in salary enhancement — in 2005 under Rendell failed.

Approximately 1,000 county and appellate judges, however, did not lose their pension-spike of that year.  Many legislators earn their positive notoriety in Harrisburg at about $85,000 annually, then run for an open county judgeship where they are paid (currently) almost $190,000.

Years of service in both elective offices count for pension credits.

Back to this Connect-the-Dots, the two major pension funds for state employees and teachers have a current shortfall.  The projected deficit is $75 billion, a sum that would fund the entire state government budget for two years.

Nationally the pension shortage is estimated to be closer to a half trillion dollars with only Illinois worse than Pennsylvania.

A private sector company is never permitted to get this far behind in pension funding.  If so, the executives might be headed to jail.  In the real world, the Pension Benefit Guarantee Corporation comes to the rescue when a private pension fund goes under.  All private pension funds kick in annual fees to the PBGC to cover payouts to busted annuities.

A low rate of return from investments and poor management by politically wired financial firms contributed to the shortfall.  Despite the poor performance, management fees have been thought by some to be exorbitant.

The legislation makes for changes beginning in 2019 to convert some pension payouts from defined benefits to contributory.  The private sector has considered contributor type pensions as the norm for decades.

True reform would have mandated immediate and total conversion to the less expensive version and higher appropriation of tax dollar contributions.

But this is Harrisburg.

First, current employees and teachers will have the option of switching to the less expensive version.  Therefore, lawmakers had to make contributory pensions more lucrative than is found in the private sector.

Second, there had to be exceptions.

Judges, state police and correction officers are work titles that will always qualify people for the current lucrative benefits.

Senators and house members will have a choice, but most are expected to continue in the defined program.

That was one of the tougher hang-ups in pension reform.  By one interpretation, legislators serve specific and short (two years or four) terms of employment.  Each re-election could be construed as a new term of employment with smaller pensions mandatory.

Continuing to coddle appellate judges, however, should protect lawmakers existing benefits, should some do-gooder group challenge the reform in court.

Bottom Line: A week ago, the Pennsylvania Senate, meeting in a rare Sunday session, voted 40-9 to send SB 01 to the House.  Later last week, the state house decided to send the legislation to Democratic Gov. Tom Wolf by a margin of 143-53.  He is expected to sign it tomorrow.

Supposedly Wolf and legislative leaders of both parties developed the reform behind closed doors over the last five months.  For four years Republicans attempted to end or reduce traditional benefits at least for future employees.  The power of the employee unions was enough to keep some Republicans from supporting the harder version of reform, hence the bi-partisan negotiations.

Some legislators told voters they would terminate the lucrative program for all workers.  These lawmakers knew full well that existing employees have a contract that cannot be broken without their consent.  The truth is not always consistent with getting re-elected in this state.

According to ABC News, seven out of 50 Senate members and 25 of 203 representatives do not take the defined benefit pension now.

Sentiment both for and against SB 01 was diverse.

Gov. Wolf, at first threatening to veto the bill, changed his mind.  Running next year for re-election, he decided that was the best he was going to get.

State Senator Scott Wagner, who does not take a pension, plans to run against Wolf in 2018.  He voted against the bill.

Some lawmakers were early proponents of pension reform.  This version of the legislation did not go far enough.  Henceforth, they voted against SB 01.

The issue is complex and likely will not be responsible for any lawmaker up for re-election in 2018 to win or lose.

Focused coverage of state government by community newspapers is no more.  Mainstream media today is more likely to help voters remain uninformed.