Keystone Research Center Says Corbett's Pension Plan Costly to Local Economies
While the state legislature considers pension reform, the liberal-leaning Keystone Research Center released a brief Thursday meant to demonstrate how public pension benefits paid to state and school employees drive local and regional economies.
Stephen Herzenberg, economist and executive director of the center, said the data was important to consider in the context of the ongoing debate about state pension reform, and in particular, the plan championed by Gov. Tom Corbett.
Corbett’s proposal would alter reforms adopted in 2010. The most significant changes include moving new employees toward plans with defined contributions (similar to a 401K), slowing the state’s year-by-year contribution to pension funds and reducing benefits to current employees.
The governor’s reforms, Herzenberg said, would divert pension benefit dollars away from local economies.
“Individual accounts essentially transfer income from Main Street, Pennsylvania to Wall Street,” he said, referring to the administration fees charged by financial managers.
The Keystone Research Center holds that current pension plans sustain economic health by guaranteeing retirees a livable portion of their income, allowing them to confidently spend money and thereby boost local economies.
Herzenberg said Corbett’s proposed plan to reform pension funds would disrupt that financial ecosystem.
“Bottom line, the governor’s pension proposal would put the retirement security of hundreds of thousands of workers at risk and have harmful ripple effects throughout Pennsylvania’s economy.”
In 2012, Pennsylvania’s two main public pension entities — Public School Employees’ Retirement System (PSERS) and State Employees’ Retirement System (SERS) — paid $7.6 billion in pension benefits to Pennsylvania residents.
“Taking into account the multiplier effects, as spending of those pension checks ripples through local economies, then going into local stores and other small businesses, that translates into $13.2 billion in economic activity,” Herzenberg said.
The center’s data shows that more populous, urban areas received the largest total amount of retirement benefits. However, it was in lower-income, rural areas that the presence of pension dollars stood to have a significant impact on the health of local economies.
“In 34 of 67 counties, almost all of them rural, Pennsylvania statewide retirement plans accounted for two percent or more of the regional economy,” Herzenberg said.
Corbett factored the projected savings of his pension reform plan into the 2014 budget, lending added fervor to the debate as the June 30 budget deadline approaches.