Union rep says Corbett plan costs more, less effective

A Pennsylvania State Education Association vice president representing a state Public Pensions Coalition warned that Gov. Tom Corbett’s plan to reform state employees’ retirement system would end up costing more and being less effective than what now is in place.

W. Gerald Oleksiak, PSEA vice president, said Corbett should allow Act 120, passed in 2010, that attempted to secure the long-term solvency of public employee pensions, to work.

That legislation increased the vesting period time, eliminated lump-sum payments, increased normal retirement age and imposed a cap on benefits, among other things, according to PSEA.

“Allowed to work, it’s going to save billions of dollars,” Oleksiak said.

PSEA estimates that Act 120 would save $3 billion during the next 30 years.

Corbett has said he wants to see current state employees’ pensions modified at a lower benefit rate, although benefits already earned would remain untouched. The governor also has proposed changing the system from a defined benefit plan to a defined contribution plan, similar to a 401(k) retirement plan.

Oleksiak said a huge problem was created when the state and school districts failed to fully fund the state teachers’ retirement system for nearly 10 years.

“What they did was legal, but it wasn’t very smart,” he said.

During that time, teachers and other employees in school districts continued to fund their share, Oleksiak added.

“For years, the state and the districts paid little into the system. It cost taxpayers almost nothing for the past 10 years,” he said. “If they had been funding it properly, we wouldn’t be in this situation. It was kind of like having a credit card bill that wasn’t being paid.”

He said that while taxpayers do pay into the system, it’s the employees’ money and its investment return that makes the system work.

“It’s a sound system, and the returns that the system gets are far above what the average investor earns,” he said.

Now, however, the Pennsylvania School Employees’ Retirement System has about a $26.5 billion unfunded liability to cover future retirement benefits, and is expected to climb to almost $50 billion in the next six years.

But Oleksiak said those are misleading figures because they are calculated as if the benefits would have be paid all at one time.

“It’s real,” he said of the amounts. “But it’s like a mortgage payment if you pay it on time.”

The Keystone Research Center stated that contributions that school districts pay into the retirement system will increase under a 401(k)-type retirement plan, while investment earnings will go down.

“More than a dozen states, including California, Minnesota and Texas, that have carefully examined defined contribution proposals similar to the governor’s have concluded it is not the best course of action, in part because it would increase unfunded liabilities,” according to a press release from the organization.

Oleksiak also said that the state would be impacted financially if and when retirees make less from their retirement savings. He said billions of dollars that are spent by retired public school employees in Pennsylvania would be at stake.

“People stay here when they retire and they spend those pension dollars in their local communities,” he said.

He defended public employees’ retirement packages that provide for guaranteed income.

“It’s easy to say, ‘I don’t have a good pension, you shouldn’t either. Why should I pay for your system?’ That’s a powerful argument to somebody who’s struggling to work,” Oleksiak said. “We understand that. But if we put you in a defined benefit plan, it’s going to raise taxes, it’s going to cost more money and it’s an inferior system, and all that economic benefits that it provides to the communities dries up.”