EDITORIAL: Pension COLA additions negative factor for state
Sep. 23—State government and public school employees are among a small minority of U.S. workers who have the long-term security of fixed-benefit pensions. Unlike most of their private-sector counterparts whose retirement accounts are subject to the vicissitudes of the economy, the public workers are guaranteed by law to receive their benefits.
Tens of thousands of retired public employees technically have benefits "fixed" upon their retirement but, as the current period of high inflation emphatically demonstrates, the cost of living is not fixed. So state government and school retirees often agitate for cost-of-living increases.
Citing current inflation, Democratic state Sens. Katie Muth, of Montgomery County, and John Kane, of Chester County, plan to introduce an end-of-session bill for a pension COLA, and a similar bill already has been introduced in the House.
Largely due to a lethal mixture of incompetence and self-interest, state legislators in 2001 permanently damaged the public pension systems. They increased their own benefits by a galling 50% and those for the other public employees by 25% without ensuring a mechanism to cover the costs. They exacerbated the problem a year later by passing a cost-of-living increase for retirees, also without covering the cost.
Taxpayers have been paying for that legislative malpractice ever since. Both pension plans remain woefully underfunded, so that the state government now contributes about $5 billion a year and each of 500 local school districts must contribute an amount equal to more than 34% of its payroll.
Earlier this year, the state's nonpartisan Independent Fiscal Office asked an independent actuary to assess the impact of the House bill that would grant COLAs of between 4.5% and 15% to more than 77,000 retirees.
Noting that the funding ratio of the school pension plan is just 59.6% of its liabilities, and that school districts' contribution is a whopping 34.1% of payroll, the actuary counseled caution. The proposal would create negative cash flow for both plans and reduce assets by 0.2% in the first year and by 0.3% over 10 years.
Inflation affects everyone but so does gravity. Adding COLAs to the supposedly "fixed-benefit" pensions only would worsen the Legislature's original uncorrected blunder.
