Overhaul State Pensions

Published March 6, 2009

Pennsylvania needs to take aim at its state pension system, but nibbling around the edges will not solve its pension predicament (“2 state pension funds lose $28 billion,” The Associated Press, Feb. 18 and PghTrib.com).

Facing a $28 billion pension-value loss and a deficit of $2.3 billion, the state needs to look at overhauling the structure of the pension system.

By leaving these liabilities underfunded, Pennsylvania is merely pushing the burden onto the backs of future taxpayers.

The private sector faced a similar pension crisis and chose to switch to defined-contribution pension plans. This allowed firms to eliminate open-ended liabilities and offer workers more pension portability and individual control.

Considering that vesting periods are often 10 years or more, many government workers are currently being boxed into a corner, causing workers to stay with jobs they don’t like in order to keep their benefits.

Under a defined-contribution pension, workers are free to transport their pension from job to job without a vesting period.

Following the private sector’s lead and switching the state and local workers’ pension system to a defined-contribution structure would prevent Pennsylvania from being burdened by the future liabilities of a pension crisis and make budgeting more predictable.

John Nothdurft
The writer is budget and tax legislative specialist for The Heartland Institute.

This Letter to the Editor was originally published in the Pittsburgh Tribune-Review.