When the legislature passed Act 9 in 2001 they had to realize that it would create this impending disaster. Even if they didn't realize it then, they certainly knew about it in 2006 when they were presented with multiple studies showing exactly what would happen in the future if they took no action. The legislature did nothing because they were too worried about being re-elected. So, now we, as taxpayers, are faced with two alternatives to deal with the pension debacle that faces us.
Option 1: Bite the Bullet
This will mean doing what needs to be done in order to return the state pension system to a fully funded status. This will mean higher taxes. Most likely the state and the school boards will need to raise taxes to accomplish this. Just for the 2012-2013 year, most school districts will require five times more funding for the pension plan than what they are currently contributing. After that spike it progressively gets worse for about 35 years. So what can be done to minimize the impact and make Pennsylvania an afford place to raise a family in the future?
First, there is no avoiding an increased tax burden for 2012-13. Even if the legislature pushes the debt into the future again, we will still be left with the up front cost to push that debt into the future. However, if this is done in a manner where the debt is repaid in a set amount each year we can whether the storm over time.
Option 2: Tear down
The second option is to make a move to a defined contribution system(a 401k type system). This option sounds reasonable, but when the consequences of this option are examined it becomes obvious that this "solution" will bankrupt the state government all by itself. Since the state pension is guaranteed by the state, it cannot go bankrupt. This means that no matter how much its costs increase, the state is required to pick up the tab.
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