* Gov does not say how $29 bln pension gap will be closed
* Other cities in Pennsylvania should follow suit, governor
* Illinois hopes to have pension reform approved by August
By Lisa Lambert
WILLIAMSBURG, Virginia, July 15 Pennsylvania is
joining a growing movement across U.S. states to overhaul public
pensions, but even while the state's governor says the need for
reform is urgent, he advocates action only after great
Pennsylvania, like so many other U.S. states, is facing a
yawning gap in its public pension fund, and Governor Tom Corbett
acknowledges that finding ways to close that gap won't be easy.
"It's going to be a working summer to start coming up with
some recommendations, because I don't think there is a silver
bullet to this," Corbett, a Republican, told Reuters on Friday
at the sidelines of a National Governors Association meeting.
"If there was, everybody would be doing it."
Corbett would not describe what he is considering to close
Pennsylvania's public pension gap, estimated at $29 billion in
2010 by Pew Center on the States. "I'm not going to speculate on
anything we're going to do until I have all the facts and we
talk to the legislature," said.
The shortfall is exacerbating other budget problems at a
time when Pennsylvania is not only confronting its own financial
woes, but also those of many local governments, he said, adding
that the cities, too, will have to look at reforming their
Like many of its peers, Pennsylvania neglected to pay the
full amount that actuaries recommended it put into its
retirement system from 2005 to 2010, according to Pew Center on
Public pensions have continued to hew to the time-honored
"defined benefit" plans that were also once common in the
private sector. Such plans guarantee the payout of a fixed
amount each month to retirees for their lifetime.
Investment earnings make up most pension revenue, followed
by taxpayer contributions. Many states short-changed their
pensions for years, and when the 2007-09 recession desiccated
their budgets, they pulled back further just as the financial
crisis ravaged investments.
Most governors now say they must reform pensions, or risk
pulling dollars from other vital areas and public services to
pay benefits. According to the National Conference of State
Legislatures, from 2009 to 2011, 43 states made changes to their
Some public employees say they are being blamed for states'
poor spending decisions and are being cheated out of money they
were promised in good faith. In some states public workers do
not receive Social Security, making retirees fully reliant on
pension benefits that average about $19,000 a year.
REFORMS IN FULL SWING
In Delaware, Governor Jack Markell, a Democrat, minces no
words on how the state's reforms passed two years ago affect
public employees: They "pay more, work longer, get less."
Although Delaware's retirement system was in better shape
than most, Markell was worried about an increasing demand for
taxpayer contributions. He met with businesses, legislators and
employees to find a compromise.
Corbett could choose to follow his lead - Markell notes the
changes in Delaware did not inspire the protests or political
strife seen in places such as Wisconsin.
In Wisconsin, however, the measures included curbing the
collective bargaining power of public sector unions, a measure
that went far beyond pension reform.
Pew estimates Delaware's gap in 2010 was $633 million, and
likely shrinking. At the time, the state had enough assets on
hand to cover 92 percent of benefit costs.
Nearby Maryland took dramatic steps last year to close a gap
Pew pegged at $20 billion in 2010, the latest year for which
data is available. At the conference, Governor Martin O'Malley,
a Democrat, told Reuters that the reforms went far.
"We made a lot of big changes last year in terms of employer
contributions, employee contributions, length of service,
benefits - the whole gamut. So, we're not planning any more
changes at this time," he said.
Some states are now looking at turning to the "defined
contribution" pension plans that are now common in the private
sector. Instead of guaranteeing a fixed amount of lifetime
benefits, the plans are built on monthly contributions made by
the workers themselves; many employers also contribute a certain
amount. Upon retirement, the individual receives a lump sum.
Hinting at one possibility Pennsylvania could follow,
O'Malley advised Corbett "to make sure that you bring everyone
in and have an honest discussion about the math."
"Once you make the decision that you want to preserve your
defined-benefit system it's easier to have an honest
conversation," he said. "If your goal from the outset is to
simply do away with the defined-benefit system, then it's harder
to have a stakeholder meeting - you're trying to eliminate
anything in which they might have a stake."
Another neighbor, Virginia, recently began requiring public
employees to put money into the retirement system while also
giving them a commensurate raise. Corbett refused to say if
Pennsylvania is considering a similar approach.
Nowhere are pension problems more pressing than Illinois,
which has an $83 billion gap. The state's changes a few years
ago only applied to future employees and do not impact current
funding problems. The Illinois legislature is looking at
Governor Pat Quinn's proposal to essentially have current and
retired workers choose between a cut in cost-of-living increases
for their retirement payments and health insurance.
"We spent June and now July studying some specific issues
that leaders or individual members wanted to look at. You know,
we've given them that opportunity but we will have to act this
summer," Quinn said, adding that he hopes the reforms will pass
before the start of the school year in late August.
"The bottom line is this is the moment of truth for our
state when it comes to pension reform."