Corbett's Budget Could Kill Pension Oversight Group

HARRISBURG — As the state prepares to face a mounting pension liability in the next decade, a key commission that oversees that state pension systems is on Gov. Tom Corbett’s chopping block.

Since its inception in 1981, the Public Employee Retirement Commission, or PERC, also has given actuarial assessments when legislation is proposed to change those pension plans.

In addition, it files mandatory annual reports on the status of Pennsylvania’s more than 3,000 local pension systems, many of which are also in dire financial straits.

But that could change next year, at least according to Corbett’s newly proposed budget plan. 

The plan calls for the commission to end, and its various responsibilities divided between the state’s two pension systems and the state Department of Community and Economic Development, or DCED.

“There won’t be anybody doing what we do, but there will be some people doing some of what we do,” said James McAneny, director of PERC. “But there won’t be a commission providing public hearings and actuarial notes to legislation.”

According to the budget proposal, PERC's municipal pension oversight responsibilities would be transferred to DCED. 

The commission's “remaining activities” will be handled by the state’s two public pension systems, Public School Employees Retirement System, or PSERS, and State Employee Retirement System, or SERS, according to the budget.

Those activities include providing actuarial assessments of the pension systems and providing lawmakers with independent information on how proposed changes will affect the systems' funding.

According to the budget, the consolidation of PERC’s municipal pension responsibilities within DCED will “integrate the data and information relating to local property taxes and pensions — two factors driving local government budget challenges — with the policies and programs in DCED that support local governments.”

Susan Hooper, spokeswoman for the governor's Budget Office, said Tuesday that the consolidation was part of an ongoing effort to identify efficiencies in government, streamline operations and reduce overhead.

The realignment will allow the new version of PERC — within DCED — to focus solely on municipal pensions, she said.

"As a practical matter, PERC has relied on PSERS and SERS to support the bulk of any actuarial analysis that was originally intended to be part of the mission of PERC. Thus, this transfer of responsibility in some respects simply reflects the current practice and can be effectively absorbed and conducted by PSERS and SERS," Hooper said.

Eliminating the commission is not saving the state a lot of money.

This year, the commission has a budget of $690,000 and employs seven people. The entire budget and all but two of those positions would be retained, but they would be transferred to DCED, according to the governor’s proposal.

State Sen. Pat Browne, R-Lehigh, who is a legislative member of the PSERS board, said the governor is proposing the changes for reasons of efficiency.

“What’s going to be important in evaluating the proposal is whether the functions of PERC can be appropriately accomplished under the new umbrella,” Brown said. “We have to honor the fact that these agencies have a responsibility, and we have to make sure they are carried out in the new paradigm.”

McAneny said the end of the commission could result in less transparency, if legislative changes are made to the pension plans or benefits in the future, since the PERC holds public hearings when such changes are in the works.

Hooper said the changes would "alter the independent nature of the organizations."

This issue is important to the taxpayers who are on the hook for a massive increase in pension contributions on behalf of the state in coming decades. 

This year, payments to SERS and PSERS will consume more than $1 billion of the state budget, up from $700 million last year. By the fiscal year that begins July 1, 2016, Pennsylvania will be making an estimated $4.2 billion payment to the two pension systems, an increase of 600 percent in six years.

Contributions continue increasing after that, and the administration has said the required pension costs will force cuts in discretionary spending.

David Fillman, president of the local chapter of the American Federation of State, County and Municipal Employees, which represents 31,000 Pennsylvania government employees, said the union is taking a look at how the proposed changes will affect its members and the pension plans.

Fillman said he would like to see the oversight responsibilities of PERC replicated within the systems themselves.

But the elimination of the commission may not have much of a practical effect on policy-making in the state Capitol, since the commission usually deferred to the General Assembly on matters of policy, said Richard Dreyfuss, a retired actuary and pension expert with the Commonwealth Foundation, a fiscally conservative think tank here.

“The other problem is that when they do come up with an analysis on something, it is generally ignored,” Dreyfuss said. “So what good is having PERC in place, if you’re going to ignore their advice?”

He pointed specifically to the passage of Act 120 of 2010, which delayed the state’s required pension payments between then and 2014. At the time, actuaries for PERC and the major pension funds told the General Assembly that the changes would cost more in the long run, but they were ignored.

The commission will remain in place at least until the end of the fiscal year, on June 30, and the Legislature must approve its elimination as part of the final state budget.