Pennsylvania pension overhaul plan stands idle

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HARRISBURG -- Despite a push from Gov. Tom Corbett, pension overhaul appears to be the least likely of Mr. Corbett's major legislative proposals to be completed by the June 30 budget deadline.

Pension overhaul plans were not included in the House Republican budget proposals unveiled Wednesday in Harrisburg

"As things stand today, it would be accurate to say the budget, transportation funding and liquor sales reform are farther advanced than pension reform," said Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi, referring to the governor's other major stated priorities.

However, the House GOP is trying to build consensus on pension overhaul, said Steven Miskin, a spokesman for House Majority Leader Rep. Mike Turzai, R-Bradford Woods and the Republican caucus.

House Speaker Sam Smith said Wednesday that decision does not reflect on the proposal's prospects in the House.

"This does not say we're not doing anything," he said. "It says these are the cards we have to deal with right now, so we're playing this hand."

Mr. Turzai said the House will hold hearings on pension overhaul.

"There will be a robust discussion on those proposals, and we'll go from there," he said.

House Minority leader Rep. Frank Dermody, D-Oakmont, said, "Of Medicaid expansion, transportation, liquor modernization and pensions, making changes to the pension system is the issue people are talking about the least."

The state's unfunded pension liability is about $47 billion, said Budget Secretary Charles Zogby, testifying at a Senate finance committee hearing Wednesday in support of Senate Bill 922, the plan put forth by the governor.

The bill would not change benefits for current retirees, but it proposes to enroll new employees in a defined-contribution plan similar to a 401(k), closing off the State Employees' Retirement System and the Public School Employees' Retirement System to new hires after 2015. Current employees would maintain the benefits they have already earned, but the plan would change how yet-unearned benefits are calculated -- reducing a multiplier used to calculate benefits, increasing the years for final average salary and limiting pensionable compensation.

Mr. Zogby said such a plan would likely be subject to immediate litigation, though administration officials have said they believe they would prevail because workers would keep retirement benefits already accrued.

Unions representing teachers and state employees disagree, saying prior court decisions prohibit reductions to contractually owed benefits to employees. They also say closing off the defined-benefit plan to new employees would actually increase the unfunded liability.

"For the majority of our members, their pension is their life savings," said Dave Fillman, executive director of the American Federation of State County and Municipal Employees Council 13. "It ensures that a large portion of our citizens can retire with dignity. It also serves as a very effective recruitment and retention tool so that the public sector can employ a high-quality workforce despite at often times lower wages."

The average retiree benefit is about $24,000 a year, he said.

The proposed Senate bill treats the pensions of school employees and legislators differently, which is unfair, testified Gerard Olesiak, vice president of the Pennsylvania State Education Association. Mr. Olesiak also said the proposed changes are highly inequitable as they would cause public employees with a break in service to be dropped from the current plan and enrolled in the new plan. About two-thirds of school employees are women, who sometimes take a year or two off work for child-rearing purposes.

"These employees will be greatly penalized for any breaks in service they may have had to raise a child," he said.

Many states have made changes to pension plans in recent years in light of the recession, such as requiring increased employee contributions and mandating higher age and service requirements for new members, said Luke Martel, a senior policy analyst with the nonpartisan National Conference of State Legislatures.

Only two states, Michigan and Alaska, have mandatory defined contribution -- 401(k)-type plans -- systems, he said in a presentation to Senators Wednesday, though many states have mixed or hybrid plans.

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Post-Gazette Staff Writer Karen Langley contributed to this report. Kate Giammarise: kgiammarise@post-gazette.com or 717-787-4254, or on Twitter @KateGiammarise.


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