Some Pension Funding Proposals You May Not Have Heard Of

Some Pension Funding Proposals You May Not Have Heard Of

With the Governor’s budget address coming up next week and the expectation that there will be something said about pensions-what with a presentation by the Budget Secretary on pension reform and the reaction by employee groups and the release of a pension report by the Public Employee Retirement Commission which comes on the heels of another pension report released earlier by the Governor’s office-how much outside of the box thinking might there be?

We have written about options over the years: switching new hires to defined contribution plans (this does not erase built up liabilities), selling off an asset and putting that into pensions, and of course there have been mentions of pension bonds (a la Pittsburgh in the mid and late 1990s), tax increases (the new report spells out what would be needed for income and/or sales hikes, no mention of local property tax increases for school pensions) but here are two mentioned in the PERC report that are quite interesting.

One is to examine what state and local governments in PA are putting toward retiree health care coverage and shifting that to pensions. The report points out that retiree health care (as part of an overall group of benefits known as other post-employment benefits or OPEB) does not enjoy the same judicial and Constitutional treatment that pensions do (that they fall into the language preventing the impairment of contracts and that pension benefits are "future compensation for present services") and that "revenue saved by modifying the active employee health care plan, or by reducing or eliminating retiree health care, could be applied to pay for pension obligations". Note that Pittsburgh, which ended retiree health care for police and fire personnel hired after 2005 (and was the subject of a Commonwealth Court case cited by the report’s section) still has to pay for its OPEB liability that was built up, but it is not taking on more costs for this benefit.

Another is to gradually wean local governments off of state pension aid (it comes from a tax on insurance premiums) and dedicate that money to SERS and PSERS. "Such a major reallocation would shift the burden from state to local resources requiring those local governments to compensate for the funding lost from the state aid program".