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Editorial: Pension crisis should be legislature's No. 1 priority

Pennsylvania's unfunded public pension liabilities threaten to smother the commonwealth's future. The burden means less money for business development and workforce reinvestment, less for crumbling roads and bridges, less for failing schools, less to fight crime, maintain parks and otherwise make the commonwealth attractive to skilled workers and employers.

Even with budget cuts, taxes will rise. The monster keeps getting hungrier while elected officials, from the smallest township to the statehouse, struggle to tame it.

The two state-level pension systems — the Public School Employees' Retirement System and State Employees' Retirement System, commonly known as PSERS and SERS — have more than $41 billion in unfunded liabilities. Municipal obligations add up to another $7 billion — and counting.

It's no wonder Pennsylvania slid to 30th in this year's CNBC business climate ranking. While the commonwealth scored high on technology, innovation and access to capital, it was dragged down by poor workforce preparedness, infrastructure and quality of life, as well as an overall high cost of doing business.

Pennsylvania is not alone in facing out-of-control pension obligations. The U.S. has run up a cumulative $1 trillion funding gap in this regard, according to The Wall Street Journal. It does, however, lag behind 45 other states that have begun reshaping their pension plans in earnest.

Investment losses in 2008 contributed to that shortfall across the board, as did overly optimistic projections on rate of return. But Pennsylvania also is plagued by a multiplicity of local governments and school districts. With 3,200 separate funds, the result is even lower investment returns plus higher administrative costs. In advocating for consolidation last week, Auditor General Jack Wagner noted that Pennsylvania accounts for a quarter of all such plans in the country.

As the Business Journal reports in an in-depth two-part series (Sept. 21 and 28), the General Assembly has tinkered with pension reform for several years, but no grand "fix it" blueprint is evident.

Nor will there be one. The problem is too broad and too complex. However, Budget Secretary Charles Zogby, among others, hopes a state reform "template" will be created next year that local governments could adopt.

With so much at stake, this should be the commonwealth's top priority. Act as soon as possible to close funds to new entrants under current defined benefit terms. Increase employee contributions and ensure sound investment and forecasting practices. Seriously consider consolidating municipal plans. (The sheer inefficiency of having 500 school districts and 2,562 municipalities in the first place is a topic we'll reserve for another day.)

Don't allow this problem to fester. That sends a strong message to businesses that they don't belong in Pennsylvania. <

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