The $1.1 billion the state is paying for pensions this year is scheduled to rise to $4.3 billion in five years. The obligation will triple for school districts over the same period.
Senate Appropriations Committee Chairman Jake Corman, R-Centre, said that pension changes "absolutely, positively" have to happen and that he hopes a plan will be in place with the annual state budget that is to be assembled one year from now.
"There's no tax increase that is palatable, there's no spending cuts that are palatable to make room for the contributions of where this pension obligation would go for the state," Corman said during an appearance at a Pennsylvania Press Club luncheon in Harrisburg. "The school districts would all begin to go in the red."
Meanwhile, the administration of Gov. Tom Corbett is still developing ideas, but looking at future benefits for current employees is part of its analysis, a spokesman said.
In recent weeks, Corbett has raised the subject with top lawmakers and said his administration is analyzing legal issues involved with pension changes in hopes that the Legislature will address it next year.
His spokesman, Kevin Harley, said potential changes for current employees will be part of that discussion "because the current system is not sustainable."
Currently, about 385,000 people are considered active employees in the state's two major retirement systems, the Public School Employees' Retirement System and the State Employees' Retirement System.
Analysts say the state's options to smooth out the cost spike are extremely limited, particularly after a 2010 law deferred billions of dollars by spreading the unfunded accrued liability further into the future, blunting what would have been an even steeper spike.
But Corman said he believes that reduction of future benefits for current employees must be considered, despite long-established legal interpretations that dictate that pension benefits promised the day of hire to school employees and government workers may not be reduced.
"I think that's something you have to look into," Corman said.
Retirees' benefits, he said, are "untouchable." While he acknowledged that courts have traditionally ruled that public employers cannot reduce benefits for current employees, he also said exempting judges and court employees from the system might help "in getting something to hold."
John P. McLaughlin, a labor and employment lawyer at Ballard Spahr in Philadelphia, said reductions of employees' future benefits could be won in contract negotiations with labor unions. But if a state law reducing those benefits is challenged in court, the state would have to prove that the public importance of the change outweighs the severity of the reduction in benefits.
"I think it's a hard row to hoe for them, because they would have to come up with that public justification," McLaughlin said.
McLaughlin also pointed out that the unfunded liability of the plan will still have to be paid and any proposed changes may not do much to reduce the costs.
For years, retirement system officials and pension specialists within the executive and legislative branches have warned that the state faced tough choices beginning in 2012.
Cost-of-living adjustments, a generous pension enhancement in 2001, investment losses during the recession and the dot-com bubble, two deferments and years of underfunding by the state have led to this point.
Meanwhile, many employees have paid more than 6 percent or 7 percent of their salaries into the system and labor unions are likely to fight any attempt to reduce employee benefits.
"Inevitably, if that were to occur, there would be a legal challenge that could take a very long time," said Wythe Keever, a spokesman for the state's largest teachers' union, the Pennsylvania State Education Association. "The bottom line is this would not solve a short-term fiscal challenge for the General Assembly in crafting a budget."