Last week, the Public Employee Retirement Commission (PERC) released a cover memo and reports from four actuaries analyzing the newest public pension proposal championed by Governor Corbett, one put forward by Rep. Mike Tobash. We put out a press release and brief on this proposal Monday.
PERC’s 150-page doorstop was not light reading. As I said in a press call with reporters, the movie rights—”Four Actuaries and a Pension Plan”?—seems unlikely to fetch a high fee.
But the reports did fill an information vacuum that had existed on a pension proposal rumored about for months.
And if you read the reports carefully, they make a solid case that the Tobash plan—and the Corbett-Tobash variant adding in the governor’s proposed cuts in pension contributions over the next four years—are non-starters.
They would make little progress in reducing the state’s pension debt, while forcing draconian benefit cuts on future teachers, cafeteria workers, nurses, and state employees.
Estimates by two of the actuaries found that many employees would see cuts of 40% or more from the already reduced level of Act 120 benefits.
The actuary for SERS, Buck Consulting, also noted that the Tobash Plan could dig a deeper pension hole and cost taxpayers more money by lowering investment returns on SERS and PSERS assets. Last year, three actuaries estimated that Governor Corbett’s plan to provide new employees with 401(k)-type savings accounts would have had a $40 “transition cost” because it lowered investment returns. A Tobash transition cost equal to even a small fraction of $40 billion would more than wipe out any savings.
Summarizing the results of these studies, PERC’s consulting actuary concluded, “For new employees, the loss of retirement security is greater than the value of the cost savings for the Commonwealth.”
The end of the KRC brief outlines a six-point framework for reform that would build on Act 120, including by incorporating elements of the pension proposals advanced by Representative Glen Grell and Senate Democrats. A starting point could be recapturing to shore up state pensions a portion of the $3 to $4 billion revenue lost annually because of corporate tax cuts since 2003.
Our press release and pension brief provide all the details, also pointing out that the Tobash plan would erode the quality of schools and state services by increasing turnover among talented mid-career professionals.