GOP leaders promote pension overhaul plan

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HARRISBURG -- A pension overhaul proposal under development by the Corbett administration and House Republicans took a step forward Wednesday with the release of projections that it would save employers $11 billion over 30 years.

The plan seeks to repair a funding imbalance that has left assets of the pension systems for state and public school workers tens of billions of dollars behind liabilities.

It would do this by closing the traditional pensions of the Public School Employees' Retirement System and State Employees' Retirement System to most new hires and enrolling those workers in a combination of limited defined-benefit pensions along with 401(k)-style accounts.

A worker's benefits through the defined-benefit plan would accrue only for the first $50,000 of compensation and for 25 years of employment. Earnings beyond the first $50,000 for 25 years would trigger contributions into a defined-contribution plan.

Such a change would transfer a portion of investment risk to future workers, while also providing those employees with a lesser benefit, according to an actuarial note from Cheiron, a consulting firm with offices around the United States, to the Public Employee Retirement Commission, which is charged with reviewing proposed changes to laws governing the plans.

"In summary, this hybrid plan proposal does provide for future cost savings as new employees participate under the systems because their retirement benefits will be lower and less costly to the commonwealth," the Cheiron note states.

As presented by thePERC, the pension changes over 30 years are projected to save $5.678 billion in employer contributions for the retirement plans of state workers and $3.53 billion for those of public school workers.

Combined with $2 billion in savings from a proposal to cut off new schools hires from a program of premium subsidies for health insurance, the changes are projected to save employers $11.2 billion by 2044.

House Republicans have discussed the proposal in caucus, and spokesman Steve Miskin said leaders aim to call a vote on pension legislation before the end of June, when the annual state budget is due.

Erik Arneson, a spokesman for Senate Republicans, said members of that caucus believe it will be important to address pension overhaul "in a serious way" in June.

Mr. Corbett supports the pension plan, and also has called for limiting a scheduled increase in the state's contributions to the systems.

In light of a budget shortfall estimated at $1.3 billion, "we're likely to be in a position where we have to raise revenue, if we're not going to do pension reform and the collars," said Charles Zogby, Mr. Corbett's budget secretary. And he said Mr. Corbett, who campaigned on a pledge not to raise taxes, prefers not to increase revenue.

Labor unions objected to the proposal, pointing to a passage from the Cheiron report that states: "For new employees, the loss of retirement security is greater than the value of the cost savings for the Commonwealth."

"This plan would force those folks to pay for past mistakes, making them cover the unfunded liability," said David Broderic, a spokesman for the Pennsylvania State Education Association, the state's largest teachers union.


Karen Langley: klangley@post-gazette.com or 717-787-2141 or on Twitter @karen_langley.

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