The Tribune Democrat, Johnstown, PA

Editorials

May 22, 2008

Pension COLA increase a recipe for disaster

“There is no extra money in the fund” for a pension Cost Of Living Adjustment (COLA). That’s the analysis from the State Employees’ Retirement System (SERS), not the Commonwealth Foundation or any other organization opposing the proposed $10.4 billion pension COLA increase.

Given that Public School Employees’ Retirement System (PSERS) financials are less favorable than SERS, one could just as easily attribute the quote to PSERS.  

COLA advocates refuse to recognize the fact that the prospects for the pension funds earning the benchmark of 8.5 percent per annum going forwarding will be challenging. Just ask PSERS and SERS; 2008 is already proving to be a difficult year. Any shortfalls will require funding by taxpayers in the form of higher property taxes and other statewide tax increases. 

Clearly, some don’t care. To quote one legislator, “What this costs is not important to the supporters.” Such a mind-set obviously applies to the 150-plus co-sponsors in the House. A press spokesman from the governor’s office recently asked the logical question inquiring as to exact revenue sources to support these proposed additional funding requirements.  

The truism remains that when you raise taxes there is a corresponding adverse economic impact. Then we ponder the question as to why individuals and corporations seek more favorable economic environments in other states? 

Benchmarking to other public pension systems is irrelevant unless you are directly recruiting your work force from other states. COLA advocates also do not mention that many other public pension systems are fiscal disasters. Moreover, adhoc pension increases hardly seem to be a relevant recruiting tool. 

Finally, based on experiences in the Pennsylvania private sector, COLAs are an anachronism since they are considered unaffordable.  

We often hear about the significant employee contributions. Employee contributions of 6 percent to 7.5 percent of pay are significant, even ignoring the 4 percent annual interest credit. The problem, however, is a lack of consistency on this point. 

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