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House of Representatives
Session of 2017 - 2018 Regular Session


Posted: February 14, 2017 01:14 PM
From: Representative John D McGinnis
To: All House members
Subject: Pennsylvania's Pension Debt Payment Plan
“Kicking the can down the road” has been the apt metaphor of the Pennsylvania legislature’s approach to dealing with its pension debt. It describes the approach that has expanded our onerous pension debt, rather than pay it down.

When Act 120 was passed, the liabilities of PSERS exceeded the market value of its assets by $33.4 billion with a corresponding funding ratio of 57.8%. At the close of FY 2016, the PSERS unfunded liability was 50% larger at $50.1 billion with a funding ratio of 49.9%. Similarly, the liabilities of SERS exceeded the market value of its assets at the end of 2010 by $13.3 billion, with a corresponding funding ratio of 66.1%; five years later, the SERS unfunded liability had grown to $20.3 billion, with a funding ratio of 56.2%.

I will soon be introducing a bill to address the pension expenses left unpaid over the past 15 years, and which have accumulated to over $70 billion (and nearly $150 billion if we properly discounted the plans’ liabilities at the state’s cost of debt).

To stop “kicking the can down the road” and its attendant generational theft, three criteria must be met in properly addressing pension funding.

First, all new benefits must be fully funded.

Second, each year’s payment toward the unfunded liability must be more than the interest cost for the year; that is, the debt must be reduced each year, beginning with fiscal year 2018.

Third, the entire unfunded liability needs to be zeroed out within 20 years, as that is about the average time until retirement for public sector employees.

My graduated funding plan will adhere to all of these criteria. It will require about a 14% increase in state pension funding for fiscal year 2018 over 2017, and each year after, pension contributions would increase by about 2.6%.

While the “lift” in the first year is not an easy one, it is necessary to actually stop the continuing growth of pension debt. Thereafter, a cost of carry of about 2.6% should be relatively easy to manage.

I ask for your co-sponsorship and support in this funding reform. It is not hyperbole to say that both our pension plans are approaching a point of no return towards insolvency. Should the assets of the pensions run dry, then each dollar promised to retirees will have to come out of general fund revenues, and will likely eat up 35% or more of that total. The opportunity to avoid the severe and irreversible consequences of pension insolvency is fast closing. I ask that we all own up to our past mistakes, and properly address our funding deficiency immediately.

Introduced as HB778