By Kevin McCorry
- There may not be three more yawn-inducing words in the English language than: “public employee pensions.”
But considering the $53 billion dollars worth of state employee pension debt currently saddling the Commonwealth of Pennsylvania, those words are at the center of nearly every conversation in Harrisburg this spring.
As politicians wage ideological warfare over the best way to deal with the rising costs associated with this debt, teachers and state workers are being targeted for major concessions.
The sharpest cuts, though, would come to the next generation of hires.
Case in point is Sophie Date. At 25 years old, she absolutely beams with excitement when she talks about teaching.
“I’m loving being in the classroom and I want to get really good at teaching, and I know that takes a lot of time and a lot of hard work,” she said.
Date is about to get her master’s in education at the University of Pennsylvania. Coming into the program, she was fairly certain she wanted to join the profession, but after a year student-teaching in a Philadelphia high school, she says she’s found her home.
“I just love being able to build relationships with students on a day-to-day basis and get to see their daily life and the way that they change and the way that they grow,” said Date.
Pennsylvania is in such a hole after a decade of underpaying its pension bill, that top Harrisburg Republicans say it’d be better to get the state out of the pension business altogether. (See here for our full breakdown of how Pennsylvania’s pension liability has grown exponentially).
So, in a way, Date is exactly the type state Republican leaders are banking on – people who love the profession enough they’ll still pursue it even as lawmakers attempt to eliminate guaranteed retirement benefits.
Based on a bill fast-tracked through the state Senate last week, Date – if hired for next school year – would be enrolled in a 401K-style plan where retirement security is tied to the stock market.
The school employees’ pension system (PSERS) says the Senate plan would ultimately deliver benefits about one-third the size of those earned by employees under the current system – benefits which, on average, provide a $25,000 annual payout to a rank-and-file state employees and teachers.
Date remains undeterred by the possible changes.
“I love what I do and I wouldn’t trade that,” she said. “I will make other plans.”
Senate majority leader Jake Corman has been the driving force in the current conversation about rethinking state employee retirement benefits. He insists on major changes to the pension system before considering any of Wolf’s plans to increase classroom spending.
“To retire at a certain age and live 30, 40 years on public pensions paid by taxpayers is an arithmetic problem for us. And we just have to deal with that,” he said. “We have to structure a program that meets today’s world, not a world that we lived in 40, 50 years ago.”
One of the more compelling reasons for ditching pensions is that it takes taxpayers off the hook for lawmakers playing politics.
“You don’t see politicians running around saying, ‘I want to fully fund the pension plans.’ That’s not a good campaign slogan,” said Nathan Benefield, vice president of policy for the Commonwealth Foundation, a free-market Harrisburg think tank.
The biggest reason why the state is facing a massive pension payment spike is because lawmakers, including Jake Corman, voted to increase benefits, and then immediately found other, more politically appealing issues to which to devote state dollars.
This put Pennsylvania 2nd from the worst in the nation when it comes to making its pension payments. New Jersey takes top honors.
“The politics really encourage the underfunding of the plans and the over-promising of the benefits,” said Benefield.
The “real” retirement crisis
Ditching pension plans – like has happened in much of the private sector – puts all the risk on employees, who, as the private sector has shown, are pretty terrible at planning for their own retirement needs.
About half of the workers in the private sector have no retirement savings at all. Those who do, on average, have about $100,000 in the bank as they near the end of their careers – far less than experts suggest.
“Certainly, it does shift the risk to workers,” said Benefield. “If the market goes down, it’s their account that’s going down, and if it goes up, it’s their account that’s going up.”
Some argue that ditching pensions is like throwing the baby out with the proverbial bathwater.
“The real retirement crisis is the collapse of retirement security in the private sector,” said Steve Herzenberg, executive director of the Keystone Research Center, a progressive-minded Harrisburg think-tank. “When you get to retirees, you see the 1 percent economy on steroids.”
Herzenberg argues that the continued decline of guaranteed retirement benefits will create a mass of retirees who will be unable to support themselves without state assistance.
Ending the state pension system for teachers and state workers will make matters worse, he says.
“So you’re telling me that when someone’s about to retire in 2008 or 2009 and they lose 20 percent of their retirement, and therefore they may struggle to make ends meet in retirement, that’s a good thing?” he asked. ” From our perspective, actually, the state is in a much better position than individuals to manage financial market risk.”
Herzenberg supports a plan to keep guaranteed pension benefits, but shift a greater share of the market risk onto employees. When markets dive, teachers and state workers would be asked to contribute more to the fund, lessening the burden on the rest of the state budget.
Cuts to current employees
Even if the state ditched the pension system in favor of a 401k system for new hires, that wouldn’t make a dent in the state’s debt in the short term. In fact, it would cost more state money because new employees wouldn’t be kicking into the pension pool that’s helping to pay current retirees.
This is why senate Republican leadership also wants to reduce unearned retirement benefits for current teachers – a proposal that, if passed, would likely face a stiff legal challenge based on contract law.
“It’s just infuriating that teachers are the ones that are always, ‘Oh, we can go back on their contract,’” said George Bezanis, social studies teacher at Central High school. “‘Their contract can somehow be obliterated without any consequences.’ Whereas everyone else, ‘It’s a contract, we can’t change that.’”
A seven year veteran of Philly schools, Bezanis entered the profession with a master’s degree and the student loans that came with it.
“I could have probably gotten a better job in the private industry. I have friends with master’s degrees who earn way more than I do,” he said. “However, the payoff is that they also have less time off and their pension isn’t guaranteed.”
Down the hall from Bezanis is social studies teacher Alex Humes, who’s in his late fifties and has been teaching in the district for about a quarter century.
“The only option is to work longer. And if that’s something we have to do, I guess that’s what we have to do,” he said. “I could work until the day I die, but when I retire, I’m actually opening up a position for someone younger.”
Less resources available for schools?
Luckily for Humes and Bezanis, all signs point to Governor Wolf blocking any attempt to ditch pensions or reduce benefits.
“I come out of the private sector,” said Wolf in a recent interview. “If I had tried to go to a regulator and say, ‘I acknowledge I haven’t paid what I should have into the system, so now I think it’s only fair that employees take a bath,’ that wouldn’t work.”
But here’s where the issue gets especially tricky. The pension payments that school districts have to make are going to be so high over the next few decades that financially struggling schools are going to be continually grappling to find the resources to meet the needs of kids.
So district administrators like Matt Stanski, chief financial officer for Philadelphia schools, are praying for some sort of measured relief.
“On the one hand, yes, we need a good retirement plan to help recruit and retain highly qualified people; however, we also need good working conditions and to be able to provide the supports for teachers necessary.”
In the end, Pennsylvania’s current pension crisis essentially boils down to this question: Who should pay for the errant decisions of politicians?
Students, teachers, or taxpayers?
Source – http://www.newsworks.org/index.php/homepage-feature/item/82158-state-pension-crisis-where-do-we-go-from-here?linktype=hp_impact