Our opinion: Reasonable pension plan
There is no question that Pennsylvania as a whole and local school districts face a financial crisis, and that means a crisis for every state taxpayer and every property taxpayer within this Commonwealth.
The crisis, of course, grows within two pension systems for state employees and public school employees.
Combined, they total $45 billion in “unfunded liability” and are expected to increase costs by $600 million next year alone.
Everyone in state government, Republicans and Democrats alike, agree that something must be done and done quickly to staunch the red ink. But, because they are all politicians, they disagree about how.
Gov. Tom Corbett made pension reform one of his top legislative priorities, and, like the privatization of the lottery and the sell-off of the state’s liquor business, he has been disappointed so far.
Now, a group of legislators has come up with a hybrid pension plan that actuaries believe holds promise for reducing the burden on state taxpayers, while maintaining a reasonable retirement income for teachers and state employees.
It is a compromise, and like any compromise, virtually no one gets everything they want.
First of all, current employees aren’t affected. The hybrid plan would only affect anyone hired next year or returning to service next year.
It’s called a hybrid because it combines a reduced defined benefit plan with a 401k-type savings plan that is becoming more common in the private sector. In both segments, the employee would contribute. In the latter plan, the employee assumes the risk, rather than the taxpayer.
It’s not a perfect plan, but we believe it is a reasonable plan.
Most people in the private sector have already accepted the fact that there are risks in life and risks in financial planning.
Ideally, the payout from the hybrid system would be comparable to the system currently in place. Depending on choices made by the employee and the health of the economy, it could be less, but it could also be more.