November 26, 2012 / 11:46 PM / 5 years ago

Pennsylvania's $41 bln pension gap puts services at risk-report

Nov 26 (Reuters) - Pennsylvania’s $41 billion unfunded state pension liability puts even core public services at the risk of being cut, the state’s top budget official said in a report on Monday.

The state’s two public pension systems had $41 billion less in assets in 2012 than they need to pay out future retirement benefits, according to Pennsylvania Budget Secretary Charles Zogby.

Without reforms, the state could be forced to cut funding for public safety, health and human services, education, roads and bridges, Zogby said.

“The areas at greatest risk of being cut are not ‘nice to have’ government services and programs, but rather the core constitutional responsibilities of state government,” he said.

Most U.S. states have begun changing their public pension systems after years of underfunding, plus poor returns on assets during the recession, left them facing big gaps between benefits they promised to workers in retirement and what they have on hand to pay.

Pennsylvania Governor Tom Corbett said in July that he intended to introduce pension reform measures to close the gap, which had been estimated at $29 billion in 2010 by Pew Center on the States. Corbett has not yet outlined what the measures would be.

Instead of raising taxes or cutting current retirees’ pension payments, Corbett should consider increasing employee contributions, raising the retirement age and moving away from a defined-benefit plan, the report recommended.

A public pension is generally considered healthy if it is at least 80 percent funded.

In Pennsylvania, the pension fund for state employees is 65.3 percent funded, while the pension fund for public school teachers and employees is 69.1 percent funded, the report found.

The funded ratios of the two systems are expected to decline over the next several years, the report said, hitting a low of 55.2 percent and 59.4 percent before beginning to rebound.

Currently, once the state pays debt service, pensions and federal entitlement obligations, there is not enough money left to pay for all remaining programs and services.

For fiscal 2014, the state could have to cut as much as $500 million to balance its budget, the report warned. Pennsylvania has a $27.7 billion budget in fiscal 2013.

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