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Yaw: State must deal with pension problem

January 27, 2013

Pennsylvania’s looming $41 billion pension shortfall for state workers and public school employees will be one of the challenges lawmakers will face this year in Gov....

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mikekerstetter

Jan-31-13 4:36 PM

carl, if you are still checking this, go to central pa community proboards.

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CarlHiller

Jan-28-13 6:21 PM

Thanks Mike.

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mikekerstetter

Jan-28-13 6:19 PM

Carl, all the legislators I have talked to on the subject state what I have just said. Corbett admits that past litigation has resulted in PA Supreme Court rulings that prohibit what they want to do. I will do some research and get back to you.

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CarlHiller

Jan-28-13 5:59 PM

where the public plan expressly reserved the right of modification. Transp. Workers Union v. SEPTA, 145 F.3d 619, 629 (3d Cir. 1998). The Third Circuit did observe, however, that "[w]hile Pennie has never been expressly overruled, most state supreme courts subsequently rejected the ‘gratuity' approach in favor of an approach that viewed such programs as creating implied-in-fact unilateral contracts." Id. at 623.

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CarlHiller

Jan-28-13 5:57 PM

As a side note Mike, "Pennie v. Reis, 132 U.S. 464 (1889). The Officers' Fund established a $1,000 death benefit payable to the officer's estate. Ten days before the officer died, the State of California repealed the Officers' Fund and established a new fund that did not offer a death benefit. James Pennie, the administrator of the officer's estate, asked Mr. Reis, the treasurer of the Officers' Fund, to pay the money to the estate. The treasurer refused to pay, and Pennie filed a writ of mandate with the state court to compel the treasurer to pay. The Supreme Court of California ultimately dismissed Mr. Pennie's writ, holding that the repeal of the Officers' Fund was lawful. The United States Supreme Court affirmed, ruling that public-employee pension programs do not create vested rights against legislative modifications." the Third Circuit ruled that changes to a Pennsylvania public pension plan did not violate either state or federal constitutional impairment of contract

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CarlHiller

Jan-28-13 5:51 PM

"The PA Supreme Court has ruled that the pensions of public employees can't be changed midstream." That is simply not true from what I have researched. There are cases the Pennsylvania Supreme Court has had about contract impairment. They have held, as other states have done, that you can’t change the terms of a contract without giving consideration. Mike, with all due respect, this is one I will agree to disagree with you on.

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mikekerstetter

Jan-28-13 4:26 PM

The government is held to a higher standard than the private sector. They must pay what they said they would pay for the services provided. The Employees were told that in exchange for their service and the money that was involuntarily taken from their checks they would get a defined benefit pension at the end of their career.

This would NOT be an issue had they not skipped out on their payments for 10+ years. It's money that should have been put in all along. No, I don't want my kids to pay for it. WE should pay for it now. If it takes raising taxes to fix the mess the Government created, then do it. The employees paid their share all these years and it's not right to look to them to fix a problem that was not of their doing. This is solely due to the mismanagement of the funds by withholding payments.

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mikekerstetter

Jan-28-13 4:20 PM

CarlHiller-"Contracts can be changed - The private sector has done it.... Are you willing to pay an additional $1000 per year in increased state and local taxes? Or as I have gathered from most of the responses are you willing to push it off to your children and grandchildren? There is a time coming when full pension payments will not be made, they can't be."

Carl, not sure who you were talking to, but here's my 2 cents again.

The PA Supreme Court has ruled that the pensions of public employees can't be changed midstream. Although they have ruled it's considered a contract, it isn't a contract in the sense of a negotiated benefit. Because it took an act of the legislature, and because the employees had a portion of their pay withheld and told that they would be paid defined benefit pension for their service and money withheld, they are protected from having it ripped out from under them.

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CarlHiller

Jan-28-13 5:39 AM

Contracts can be changed - The private sector has done it innumerable times. There are a number of ways to minimize effects on current employees - but everyone is still going to be affected. We are going to pay higher taxes, employees are going to get less, and government is going to borrow more. One way is to take current funding and purchase annuities as Verizon just did in 2012 to alter its current retirees plan. Another is to offer lump sums to retire early and hire new workers under the changed plan. This is one of those things that I divert from the 2 major party lines. This crisis can be fixed, not perfectly overnite, but it can be fixed. Are you willing to pay an additional $1000 per year in increased state and local taxes? Or as I have gathered from most of the responses are you willing to push it off to your children and grandchildren? There is a time coming when full pension payments will not be made, they can't be.

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Zippie

Jan-27-13 6:28 PM

I wouldn't want mine changed either ... but there may come a day when ...

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mikekerstetter

Jan-27-13 4:48 PM

Zippie, that me be so with laws, but it's not so easy with Supreme Court Rulings.

The law forced employees to participate. "Participate" meant that money was taken from the employees pay each payday with the promise that upon retirement they would get a monthly payment based on a set formula (set percentage x years of service x final average salary). It's been ruled, by the PA supreme court, that it is a contract that can't be broken. Now Corbett and some legislators want to try it again in court and see where it falls. I don't know that they have the support to even try it for existing employees.

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Zippie

Jan-27-13 3:00 PM

The right "buddy", enough money under the table and a stroke of a pen and ANY (past or present) law can be changed.

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blahxthree

Jan-27-13 2:34 PM

Carl- the current program is a CONTRACT made between the state and the employees. Employees have continued to pay their fair share over the past 14 years despite the STATE having stopped paying its share. Just because Corbett ran on a no tax-hike platform doesn't mean that it is truly feasible when he knew about this mess! He's alraedy made public education a target, now he's going after the retirement? I lost half my pension to my unfaithful ex-husband in a divorce settlement, I'm not about to let anyone else mess with the remaining part of my retirement for my final years of work.

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mikekerstetter

Jan-27-13 12:20 PM

Carl, it doesn't matter if they switch all new employees to 401k's. It doesn't solve the problem of current employees pension funds being underfunded. And, in fact, there are people who warn that switching new employees to 401k's will make the current problem worse because you will lose the income into the system.

PA Supreme Court rulings have said you can't change public employees pension plans mid-stream, that basically they are contract between the Commonwealth and the employee.

So while I don't necessarily disagree with switching new employees to 401k's to alleviate the problem in the future, you aren't going to get away from putting the cash back into the current system to fix the problem.

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mikekerstetter

Jan-27-13 12:12 PM

andy33-"(FDR) warned AGAINST public sector unions.."

CarlHiller-"Lawmakers...Stand up to the unions"

The problem is that Unions don't make the laws. Yes, they and their members may lobby for them, but they don't make laws. The Pensions in PA are the result of laws that were passed, not collective bargaining. You can continue to misplace your blame on the Public Sector employees and their Unions, but if you want the truth to the cause of the problem look to the Government who made the law and then didn't fund it as they should have.

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CarlHiller

Jan-27-13 8:56 AM

Lawmakers cannot continue play political games with taxpayer monies. Stand up to the unions, quit being little girly-men. 401(k) plans offer convenience for workers. Workers will benefit from the ability to take their 401(k) with them as they change jobs. Retirees can pass their remaining 401(k) onto their heirs, whereas pension payouts end when retirees die, even if they paid in more than they collected. And, most importantly Pennsylvania taxpayers benefit from an affordable retirement system for government employees who will benefit from a sustainable system that will actually be there when they retire. Issuing bonds is not the way to fix the problem it only pushes it onto future generations and that is something that must stop. Future generations cannot afford to pay for our overspending today, they will have their own spending issues.

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CarlHiller

Jan-27-13 8:41 AM

This definitely a clear case of politicians mismanaging the pension funds. In 2001 elected politicians believed pensions were well-funded and stock market gains would continue indefinitely, so they decided to boost pension benefits for themselves and government workers - retroactively (1st mistake). When the stock market dropped, lawmakers erred again by voting to put off paying for those losses for years (2nd mistake). Losses were again exacerbated by big investment losses in 2008 (3rd mistake).Looks like mismanagement to me. the only solution is to get politics out of pensions. Fixing this mess can only happen by moving from defined benefit pensions, where taxpayers provide the retired government employee a guaranteed government income for life (we'd all like that), to a retirement plan that the majority in the private sector have, something like a 401(k). Those private companies that offer a retirement switched to these decades ago.

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andy33

Jan-27-13 8:03 AM

I believe FDR [you know, that famous Democratic president] warned AGAINST public sector unions....reap the harvest!!!

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mikekerstetter

Jan-27-13 4:48 AM

"I don't think the pension plan has been mismanaged."

If you don't consider not funding the plan as it should have been funded for over a decade as 'mismanaged', I guess he is right. I believe differently though.

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