Pennsylvania's pension systems are at a crisis point.
Not at some point in the future. Right now.
A lot of attention goes to Pennsylvania's two major statewide pension plans — the State Employees' Retirement System (SERS) and the larger Public School Employees' Retirement System (PSERS) — but the state's local government pension systems also are woefully underfunded.
Actuarial valuations are revealing, and a cause for budgetary concern. According to recent testimony by Budget Secretary Charles Zogby to the Public Employee Retirement Commission, the latest numbers show that SERS has an unfunded liability of nearly $15 billion and is 65.3 percent funded, while PSERS has an unfunded liability of $26.5 billion and is 69.1 percent funded.
SERS and PSERS will have unfunded liabilities of $65 billion by 2021. The potential impact on our state's budget is staggering.
Again, according to Zogby, in the current 2012-13 fiscal year budget, the general fund appropriation for the commonwealth's share of the employer contribution to PSERS is $856.1 million, up $255.9 million, or 43 percent, from last year's $600.1 million. Similarly, Pennsylvania's contribution to SERS is projected to be $677.4 million in the 2012-13 fiscal year, up $209.3 million, or 45 percent, from last year's $468.1 million.
The annual increases in contributions to SERS and PSERS are crowding out other important program areas by swallowing limited funding.
This is only half of the story.
You may not be aware that Pennsylvania has more than 3,200 separate local government pension plans — 25 percent of all such plans in the nation. Municipalities across the state face ever-mounting financial challenges. Tax base loss, crumbling infrastructure, and escalating health care and pension costs strain their financial capacity. Federal funding to the states is being curtailed, and that results in less state funding to municipalities.
The pension problem is not just a city problem. Pension stress can be found in boroughs and townships in rural, suburban and urban areas. Sixty-six of Pennsylvania's 67 counties have at least one municipality with a pension plan that is under a high level of financial stress. About one-third of Pennsylvanians live in a municipality with a distressed pension plan.
It's also not just a municipal problem. By 2035, local school district pension costs will be 14 times higher than today.
PICPA established a Fiscal Responsibility Task Force and, in 2011, the first report called attention to the pension crisis. We shared this report with the General Assembly.
In September 2012, we joined the Coalition for Sustainable Communities, working closely with its coalition partners to implement a common agenda to promote municipal financial health. Efforts include developing legislation to address the shortcomings of the binding arbitration law, Act 111, as well as legislation to address the shortcomings of municipal pension laws.
This is an enormous issue, and taxpayers should become educated about this topic and hold their state lawmakers accountable as proposals to address pension funding move through the legislative process.
—Peter Calcara, vice president, government relations, Pennsylvania Institute of CPAs