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Preserving State Employee Pension Funds in PennsylvaniaHow did we get here….

and where are we going?Presented to the Lehigh Valley Central Labor Council

Wednesday, February 6, 2013SOURCES FOR THIS PRESENTATION PROVIDED UPON

REQUEST

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Wisconsin: A Cautionary TaleThis snarling badger (also the state animal of Wisconsin) represents the movement to defend collective bargaining rights that began on February 13, 2011……

The snarling badgers made one crucial mistake.

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Wisconsin continued….

They stopped doing this. That was mistake #1.

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What does WI have to do with PA?

National, well-funded conservative agenda to destroy collective bargaining rights for public workers AND undermine their defined benefit pensions, so the membership begins to ask….

“What is the purpose of my union?”The public is now involved in the debate….

How do we redirect the discussion? How do we talk to “taxpayers”?

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Act 120/2010 Pension Reform Law Did Not….

1. Replace the defined benefit plan with a defined contribution plan.

2. Create an optional defined contribution plan.

3. Reduce benefits for current employees.

Act 120/2010 Pension Reform LawCHANGES TO FUNDING:

1. Ended employer contribution holiday2. Eliminated 2012 rate spike 3. Committed employers to stepped up

contributions subject to rate collars

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The 2010 Pension Reform Laweliminated the 2012-13 rate spike.

(Projected ECRs for PSERS)

2011 2012 2013 2014 2015 2016 2017 2018 2019 20200%

5%

10%

15%

20%

25%

30%

35%

10.59%

29.22%

32.09%

8.65%

12.36%

16.75%

Pre-Act 120 Act 120

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f Pay

roll

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2012

-13

Rate

Sp

ike

2010 Pension Reform Law: Cut the Long-Term Costs

CHANGES IN BENEFITS for PSERS (New Hires Only):1. Dropped Multiplier to 2.0% with Option of 2.5% if

member pays full cost difference

2. Increased age for full retirement to 65 or “Rule of 92” w/35 years of service

3. Eliminated the Option 4 lump sum withdrawals

4. Increased vesting period to 10 years

5. Increased the cost of the purchase of credit for non-school service (except for military service)

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20112013

20152017

20192021

20232025

20272029

20312033

20352037

20392041

20432045

0%

5%

10%

15%

20%

25%

30%

35%

Payments for benefits already earned but not yet funded comprises a majority of the Employer Contribution Rate.

PSERS Projected ECR: 2011-2045Total Employer Contribution Rate Unfunded Liability Rate

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f Pay

roll

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Total ECR

Unfunded Liability Rate

It’s in the numbers:Pension reform can only have a

“marginal” impact on the challenge at hand.

The challenge is paying for the benefits that have already been

earned but are not properly funded.

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Divide and Conquer = Generational conflict

We will pay!! Weakens the existing plans

with potential for default

Proposed alternative plans ACTUALLY COST MORE!!!

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So, Now What? Proposed Changes

1. No retirement: do away with all retirement savings vehicles for employees to eliminate Employer’s RISK altogether.

2. Defined contribution plan: 401(k) accounts created with potential for a “choice” between defined benefit and defined contribution.

3. Hybrid plan: defined benefit with 401(k) on top.4. Cash balance plan: Employer contribution is fixed

(and very low) while employee benefit is fixed (and even lower)

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Type of Plan

Contributions

EarningsBenefit with

35 years/$80,000 FAS

Monthly Annuity Payment

Member Employer

PSERS(Class T-D) 7.5% 0 – 20%*

as neededRetained by Fund $67,185

Yes w/partial lump

sum option

PSERS (Class T-E)

7.5% +risk-sharing

0 – 20%*as needed

Retained by Fund $53,748 Yes

401(a)(HB 2454)

4% minimum up to IRS

maximum4%

Variable (±)

Member-directed

Varies w/earnings,

contributions and expenses

Lump Sum(annuity only if

purchased)

Cash Balance

(HB 1677)7.5% 5% 4% a

Year $25,880Lump Sum

(annuity only if purchased)

* Pension Rate Historic Range

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Why Now?The pension liability has to be dealt with; that’s

true.

The CLEAR Coalition (Coalition for Labor Engagement and Accountable Revenues, www.clearforpa.org--

PSEA, AFSCME, AFT, APSCUF, IAFF, SEIU, UFCW) has identified additional revenue streams.

However, Governor Corbett and his allies have arbitrarily made “pension reform” their #1 priority for

the 2013 Budget.

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Pardon me? Can you please repeat that?

"I equate that to a Pac-Man or a tapeworm eating up the budget," Corbett said. "I do not see the economy growing at that kind of rate and even if it did, it would just keep us even. If we do not address this pension issue now, we will be worrying about how we pay for the pensions and won't be able to pay for other needed services.““Corbett wants to confront Pa. pension costs 'tapeworm‘” by Marc Levy, The Sentinel (published online May 6, 2012)http://cumberlink.com/news/local/govt-and-politics/corbett-wants-to-confront-pa-pension-costs-tapeworm/article_a34f3d12-9793-11e1-a979-001a4bcf887a.html

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Who “Deserves” Retirement?"I think personally that we can't continue to have a public sector retirement plan which is defined benefit while the private sector continues to move everyday toward defined contribution," said Pileggi. "I don't think that's sustainable. I don't think taxpayers will continue to accept a different retirement plan for government employees paid for with their tax dollars than they have themselves. Whether we're going to change it this year or next year or five years from now, I don't think the current model is sustainable. Now if the private sector comes back to the defined benefit world, then maybe it is sustainable. But the trends don't seem to be going in that direction.“-Senate Majority leader Dominic Pileggi, February 5, 2013Quote featured in Patriot-News article 2/5/13: “Details of Corbett’s cut and collar pension plan,” by Donald Gilliland.http://www.pennlive.com/midstate/index.ssf/2013/02/pennsylvania_budget_-_details.html#incart_river_default

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Corbett’s 2013 Pension Reform “Plan”

• Makes the pension debt (also known as the “unfunded liability”) WORSE; this is a liability that has already been accrued over decades

• Cuts benefits for current employees by tinkering with the “plan design”

• Will immediately land the Commonwealth in lengthy, EXPENSIVE legal battles regarding “impairment of contract” law

• Kicks the can, again, and authorizes the Commonwealth to avoid its responsibility!

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Contact Your State Legislator:1. Call your State Senator or State Representative and ask him or

her: • “How are you going to fund pensions for current and future state

workers?”• “What about benefits for current and future retirees if the system

is broken?”• “Why are you doing this now? What about Act 120?”• “Live up to your commitment and let Act 120 work!”

Important: write down what they say, or request a response from them in writing!

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Contact Your State Legislator cont.

2. Schedule a meeting with your State Legislator in his/her home district, and invite other constituents!• “How are you going to fund pensions for current and

future state workers?”• “What about benefits for current retirees if the system is

broken?”• “Why are you doing this now? What about Act 120?”• “Keep your end of the deal—Let Act 120 work”

Take notes! These meetings are vital!

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What’s Next: Be Prepared• Get informed! Read everything you can get your

hands on.• Request meetings with your legislators and tell

EVERYONE to do the same.• Inform and organize your family, friends, neighbors,

former colleagues, community leaders; this affects us all.

• This is not about political ideology.

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THANK YOU!

Questions, Concerns, Comments?

Jennifer BlatzPension CoordinatorPennsylvania AFL-CIO

Cell: 617-501-9470Email: jblatz@paaflcio.org