PA’s Pension Tab: $1,550 per Household

Almost everyone knows there is a pension crisis in the public sector, but very few can see how that affects them directly. Sure, there have been municipalities across the country that have filed for municipal bankruptcy in order to reorganize, but none have sold off police cars or park benches as a result of a liquidation. People in western Pennsylvania know that Pittsburgh has a low funded pension and that the money it takes to be put toward pensions and other legacy costs means fewer dollars for traditional public services.

But what does the pension crisis mean for the typical household? A recent academic treatment of the topic examines what it would cost for pensions to be fully funded over the next thirty years assuming no policy changes to the nature of pensions. The paper points out that most public sector pensions are defined benefit plans, where an employer promises the employee an amount at retirement based on age, length of service, and final salary calculations as opposed to defined contribution plans like a 401k or 403b where the employee saves for retirement often with a match from the employer. The report notes that the longer it takes for states to reform pensions the liabilities keep accumulating.

So the paper sets out to calculate the required increase per resident household to pay the existing liabilities off over a three decade period. Or, as the authors of the paper posed the question in an editorial, "how much will your taxes have to increase?" The U.S. average for the fifty states is $1,385 per year, with Pennsylvania coming in slightly above that average at $1,550. New York is the highest at $2,250, and Indiana is the lowest at $329. The states nearby to southwestern Pennsylvania are quite different, with Ohio at $2,051 and West Virginia at $600.