Tuesday, November 16, 2010

The Need for Pension Reform

First, a brief note about a milestone:  our Daily Briefing this morning hit 1,000 posts.  Woohoo!

Now, moving right along.  This article came our way and it was worth sharing.  In details some of the more extreme abuses of public pensions in America: in New York, a firefighter who will receive a $101,000 pension for life (he's 44), etc.  The extreme examples are horrifying but are used to illustrate the point: the system by which our local and state governments give pensions to retirees is broken.  Of course, since the examples are more extreme than anything else, they are easy to dismiss.  That shouldn't happen.

In our own Allentown, the city's pension obligation has arisen from $5.5 million in 2005 to $14.5 million this year - a massive increase of 116% in just five years.  The city's pension fund is only 60% funded and is currently rated to be under distress - and, as one of the remedies for this, the Mayor is proposing a 40% tax increase that will be devoted exclusively towards funding the city's pension obligation.

In Philadelphia, the city only has enough money to fund its pension through 2015.

In Pennsylvania, prior to legislation passed yesterday, the state was expected to have to pay an additional $4 billion in pension costs to deal with benefit enhancements and deferred payments.

There are plenty of examples of our pension woes, and there is no shortage of factors that have caused these significant issues.  Chief among them, however, is that local and state governments offer a defined benefit vs. defined contribution pension plans.  A (very) simple explanation: Under defined benefits, government is forced to pay out an obligated amount to beneficiaries, regardless of what happens in the stock market - meaning that the government (taxpayers) has to foot the bill for any investment losses.  In a defined contribution, a beneficiary, not the government, is responsible for these losses.

Bluntly:  Defined benefit plans are bankrupting our governments and pushing them to insolvency.

You can expect to hear more on this subject from The Chamber.

3 comments:

Anonymous said...

I hope the Chamber comes out against Mayor Pawlowski's tax increase.

Anonymous said...

I see the Chamber held a press conference yesterday to complain about pension costs. Still no mention if the Chamber is going to come out against the Pawlowski income tax increase for funding pensions. One would think the Chamber would be against such a large tax on workers, but I am hearing from Pawlowski's people that the Chamber supports it!!!Where does the Chamber stand on this tax?

Anonymous said...

I see Atown Council passed the EIT increase and the Chamber never took a stand against it! What the heck?!!!!