After years of kicking the can down the road, Pennsylvania has enacted legislation that lawmakers hope will put a significant dent in future public pension funding shortfalls:
The compromise measure will move most future state and public school workers at least partly into 401(k)-style plans to help shore up the deeply underfunded pension system and shift market risk from taxpayers to employees. An independent analysis estimates the state will save $5 billion to $20 billion over 30 years, depending on investment performance.
On the one hand, it’s good that state lawmakers have woken up to the fact that the first step of getting out of a pension hole is to stop digging. This measure will help Pennsylvania limit the growth of its massive, $62 billion pension debt.
It’s also a better fit for a 21st-century employment scene increasingly characterized by career changes and job flexibility. The state’s old, traditional defined-benefit pensions only vest after ten years, tying workers down to jobs they may no longer want or be suited for. Workers with a portable, defined contribution system—properly administered—benefit from the added career mobility.
But by and large this legislation isn’t as big a step forward as lawmakers and Pennsylvania’s Governor Tom Wolf are making it out to be. The new system does little to address the problem of debts racked up by the kind of public pension shenanigans that should be all-too-familiar to Via Meadia readers:
Pennsylvania’s pension crunch dates to a 2001 move by the legislature to sweeten benefits, combined with subsequent underfunding by state government and school districts, and weak investment returns, particularly after the 2008 financial crash.
So the digging may have stopped, but Pennsylvania’s hole is still a deep one.