May 20, 2013 2 min read

The May 9 editorial on public employee pensions omits some facts and makes some misleading statements.

The pension debt confronting Pennsylvania’s retirement systems for state and public school workers is not primarily a result of benefit changes which occurred in 2001, as the editorial states. The benefit changes from 2001 are only a small portion (19 percent) of the system’s? unfunded liability. The underfunding is primarily due to investment losses stemming from two historic recessions and underfunding of the system by the employers (the commonwealth and school districts). Those two factors contributed to 81 percent of the unfunded liability.

Teachers, nurses, social workers and law enforcement officials never stopped paying into their retirement systems, paycheck after paycheck. Many of us contribute 7.5 percent of our salaries for our pensions. Some now pay 10.3 percent.

Gov. Tom Corbett’s proposal to reduce benefits of current workers – a move that would violate the state constitution’s bar on impairment of contracts – does not remove the state’s obligation to pay off its pension debt. And his plan to force new workers into a defined contribution, 401k-type plan doesn’t solve the problem either. That’s not just theory. It’s the actual experience of the states that have moved in that direction.

Three states that have closed off their defined benefit plans and put all new hires in 401k-type plans: West Virginia (1991); Michigan for its state employees (1997); and Alaska (2006), all experienced dramatically higher employer (taxpayer) costs.

Actuarial studies in 12 other states examining a similar move concluded that modifying defined benefit pension plans to lower long-term costs and increase employee contributions,?both of which Pennsylvania did in Act 120 of 2010,?is more cost-efficient.

The employer cost for workers’? benefits under Act 120 of 2010 is only 2.2 percent. Once the debt is paid, the system is very sustainable.

Kevin McCarty

Fredericktown