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Pennsylvania Should Take Action to Bolster Retirement Security, Says Keystone Research Center

State Should Make It Easier for Small Business to Offer Private Pensions and Stabilize Contributions to Public Pensions.

SB Informer
Wednesday, October 4, 2006; 08:07 AM

With concerns about retirement security widespread, state government should take action to strengthen pension security in both the private and public sector, according to a new report released today by the Keystone Research Center (KRC) and the Center for American Progress (CAP).

Public anxiety about retirement security stems from a number of trends, mostly in the private sector. Only half of private sector Pennsylvania workers are now covered by any employer-provided pension and the quality of many pensions that remain has deteriorated. Some have proposed to make public sector pensions more like private sector ones, a step that would further undermine retirement security.

"Given low saving rates, record borrowing, and recent wage declines for most workers," says Dr. Stephen Herzenberg, KRC economist, "what will happen to today's workers when they retire must be on the policy agenda in Harrisburg."

The KRC study "Rewarding Hard Work: Give Pennsylvania Families a Shot at Middle Class Retirement Benefits" argues that the state could and should take steps now to help Pennsylvanians secure their retirement.

Specifically,

- Maintaining and strengthening public sector pensions that provide retirees with a guaranteed amount of money each year (or "defined benefit") based on years of service.
- Helping employers, especially small businesses, set up 401(k)-style defined contribution plans, which pay out upon retirement based on employer and worker contributions and on the growth of these contributions once invested.

Christian Weller, co-author of the study, says both steps are important for the health and future growth of Pennsylvania's economy.

"As the report shows, controlling for education levels, public sector workers earn lower wages and salaries than private sector. Good pensions are a needed incentive for skilled professionals to join public service and deliver the educational and other services critical to business expanding in Pennsylvania."

In the private sector, Weller adds, pension funds are vital sources of investment capital. James Brown of SCP Partners, a Pennsylvania venture capital firm, underscores that pension funds are especially important to new technology businesses that account for many of Pennsylvania's well-paid new jobs.

"In a strong economy with high productivity and high profits," adds KRC economist Mark Price, a report co-author, "discussion of retirement issues in Pennsylvania should focus squarely on the problem of how to secure decent pension coverage for as many workers as possible."

While some express concerns about the affordability of public sector pensions, Pennsylvania's plans have funding ratios of over 90 percent, higher than most states. The report also finds that current projections for employer contributions remain low (2-7 percent or less of payroll) through 2011 or 2012. A projected spike in contributions after then could be reduced by taking action now to stabilize contributions over the economic cycle.

At a press conference to release the report, Pennsylvania State Representative Steve Nickol (R-193) said, "This report offers state policymakers a new viewpoint on the state's public pension systems. I appreciate KRC's support in my efforts to raise the statutory minimum for the employer contribution rate as a means to begin addressing the potential spike in these rates."

Price concludes that "the larger question is can we afford not to fund pensions because one thing is certain: curtailing or eroding public or private coverage will not prevent people from growing old. The needs of retirees and the elderly will have to be paid for by someone. KRC's and CAP's recommendations would ensure that funding retirement remains a shared responsibility of business, government, and families -- and not fall too heavily on families. This would safeguard quality of life for Pennsylvanians after a lifetime of hard work."