Letter to the Editor on Public Pensions
from Executive Director David Fillman
Pensions are a hot topic for taxpayers these days, and many of them are angry over public employees' pensions. After all, public employees including state workers do continue to enjoy truly superior pension packages - but taxpayers should realize that this is not at their expense. It is because of the funds' exemplary management.
Unfortunately it didn't make the headlines, but on October 25th I had the honor of testifying at the Capitol, before the Speaker's Special Task Force on Healthcare and Pension Costs. I did so in my capacity as a board member of SERS (the State Employees' Retirement System). I am also the Executive Director of Council 13 of AFSCME (the American Federation of State, County, and Municipal Employees), which represents more than 65,000 public employees of the state and in counties, townships, boroughs, cities, school districts, and health care facilities across the Commonwealth.
Pension funds (or "defined benefit" plans) typically generate greater earnings than most 401(k)-style retirement accounts (or "defined contribution" plans), for good reason: Pension funds pool all of the contributors' assets into a large pool managed by investment specialists. Retirement accounts create separate accounts for thousands of individual participants, who are left to figure out the investments for themselves.
With no administrative costs to the state's General Fund, SERS serves more than 200,000 active and retired participants, and has scored three straight years of outstanding returns -- 14.9 percent in 2005 (double the national
median for similar funds); 15.1 percent in 2004; and 24.3 percent in 2003. SERS' excellent financial stewardship has saved Pennsylvania more than $2 billion in the past decade, placing us in the top 5 percent of pension funds
in the nation and earning us prestigious national awards for investment management.
The Commonwealth does face a "balloon payment" in 2012, which is the result of Act 40, legislation enacted when the state was in a $2.5 billion deficit, and which delayed the state's contributions until it regained its financial footing. Since Act 40 was signed into law, the state contributed nothing for one year, 1 percent the next year, 2 percent the following year, and 3 percent this fiscal year. All the while, state employees have continued to pay an average of 6.25 percent of their earnings.
This "balloon payment" is being played up in the news by banking lobbyists who are eager to dismantle traditional pensions and move employees into highly risky 401(k) style plans. Their motive is this: Banks charge every
account-holder a percentage of their savings in fees, which translates to billions of dollars in revenues for the banking industry. The individual employees are left to handle their own investments, so it isn't surprising
that retirees with 401(k) plans have far less for their "golden years" than those fortunate enough to have pensions.
The "balloon payment" is not an unavoidable catastrophe. The Commonwealth and the pension funds are already tackling this issue; in fact the October 25th meeting was held specifically to hear from the experts, to examine all
of the funding options, and to determine the best course of action to protect both retired public employees and the taxpayers of Pennsylvania.
Sincerely,
David R. Fillman
Executive Director
AFSCME Council 13 |
