by Richard W. Stewart
To Senator Art Haywood in response to his opinion piece, “GOP pension reform: Don’t be fooled,” June 11.
I was disappointed in your letter as I think that you failed to properly explain the cause of the pension problem. In addition, I think that you materially misrepresented proposed House Bill SB1 by omitting important facts.
The $58 billion pension problem faced by Pennsylvania can be traced to three principal issues:
1. In 2001 the Pennsylvania Legislature made a serious mistake and approved a 25 percent increase in employee retirement benefits (the 2 percent multiplier was raised to 2.5 percent). With the prior 2 percent multiplier, a teacher with a final three years average income of $100,000 and 35 years of service would receive a pension of $70,000 per year (35 years x 2 percent x $100,000 = $70,000 pension). By increasing the multiplier from 2 percent to 2.5 percent, the same teacher would now receive a pension of $87,500 (35 years x 2.5 percent x $100,000 = $87,500).
2. As a result of the 2008 recession, the investment returns declined dramatically and the state pension plans experienced substantial losses in the neighborhood of 25 to 30 percent.
3. In order to recover from these problems the state would have to fund substantial additional payments to the pension fund over the next 25 – 30 years. So far, the state has not developed a funding plan to deal with the problem. If the legislature cannot agree on a funding plan, the pension problem will simply grow larger over time. Some people call this “Kicking the can down the road.”
The legislative hearings on pension reform in Harrisburg consistently cite these three basic problems as having caused the majority of the pension shortfall.
I believe that Pennsylvania House Bill SB1 proposes to introduce a voluntary contribution plan (VCP) for new employees. A VCP is similar to a 401(k) plan whereby the employee and the employer would each contribute an amount such as 5 percent of salary to each new employee’s retirement plan. In addition to the VCP, the new employee would also have a new defined benefit plan similar to the current plan but on a much reduced basis. In your letter you mention that for the average employee the new defined benefits plan would fall from $72,592 per year to $14,843 which is roughly an 80 percent reduction. Unfortunately, you did not mention any pension benefit from the VCP which is a material omission. As a result of this omission you incorrectly conclude that a whole generation of Pennsylvania retired employees would be consigned to a life of poverty. This is simply incorrect.
I think that we both agree that Pennsylvania has a significant pension problem. This issue will be resolved by sensible discussion and not by incendiary letters written to twist the facts and unduly alarm your constituents. In the future you would be well served to stick to the facts and avoid the temptation of yelling “fire” in a crowded theater.
In the event that one of your staffers wrote this letter for you, I would hope that in the future you would do your homework before releasing such a misleading communication. As our elected representative we expect better from you.
Richard W. Stewart is a long time resident of Northwest Philadelphia. He currently lives in Glenside.