Pennsylvania pension overhaul moves ahead

Under a measure narrowly OK'd by a Senate committee, new state and school employees would get a 401(k)

Share with others:

Print Email Read Later

HARRISBURG -- Months after Gov. Tom Corbett called for pension reform, his proposals got a first legislative vote Wednesday when a Senate panel removed changes for current workers before narrowly approving a defined contribution plan for new hires.

Sen. Mike Brubaker, chairman of the Finance Committee, had introduced legislation mirroring Mr. Corbett's proposal to divert new state and public school employees from the traditional pension systems while changing how current workers accrue benefits during future years of service. But Mr. Brubaker, R-Lancaster, said he concluded the proposal lacked enough support to clear his panel.

"The reason I went from the original Senate Bill 922, which was much more aggressive, to this, is that this is what I thought we could get a positive vote out of committee," he said after the 6-5 vote.

The amended bill would enroll nearly all state employees hired from January 2015 and public school employees hired from July 2015 in a 401(k)-style retirement plan. State police and corrections officers would be exempted, while elected officials including the governor, legislators, the attorney general and judges would be moved to the defined-contribution plan upon winning re-electon or retention.

The committee stripped from the bill a set of changes, proposed by the governor, to how pension benefits would be calculated for future years of work by current employees.

Labor leaders maintain that state case law safeguards the contract terms of workers already hired and have promised from the start to sue if such changes become law. Republicans focused on pensions in each legislative chamber have expressed hesitance about passing changes that would get tied up in court.

Mr. Corbett responded to the vote with a statement thanking Mr. Brubaker and the committee.

"Today's vote is a positive step toward pension reform in Pennsylvania," he said. "The introduction of a defined contribution plan for future employees protects the future of our pension systems by shifting investment risk away from taxpayers, while also providing a best-in-class plan for future employees."

Mr. Corbett said he would continue to work with lawmakers on other changes to the pension systems.

Twenty-six senators, all Republicans, have signed on to a separate bill to move new hires to a defined contribution plan. The bill that cleared the Finance Committee could head to the Senate floor next week, as pressure mounts for legislators to deliver a state budget and other major initiatives by June 30.

A pension overhaul is one of three policy packages Mr. Corbett has urged legislators to send him by the budget deadline. Bills to disband state liquor sales and increase annual funding for transportation infrastructure have each passed one chamber. But the committee meeting Wednesday offered the first vote on pensions.

A House panel on Wednesday heard testimony about pensions changes, but members of the Republican majority have not decided how to proceed.

"There's a lot of concern about current employees," said Steve Miskin, a spokesman for the caucus. "If the Senate sends us that bill, we're going to take a very serious look at it. Our members are working within our chamber, trying to reach a consensus."

Proponents of changes to the statewide pension plans cite growth both in state payments to and in the unfunded liabilities of the State Employees' Retirement System and Public School Employees' Retirement System. Actuaries have estimated the combined unfunded liability at more than $47 billion.

For a new worker enrolled in a defined-contribution plan, the state would no longer bear the risk of having to compensate for poor investment returns, said Sen. Pat Browne, R-Lehigh and a caucus leader on pensions.

"This presents a lot smaller exposure and that's the reason we're doing it," he said.

Democrats contend the state already has righted its pension systems through changes made in 2010, that they say will restore healthy funding ratios in the coming years. All Democrats on the Senate Finance Committee voted against the defined-contribution proposal.

Labor unions protested by pointing to studies showing a cost to switch new workers to a defined-contribution plan. Kathy Jellison, president of SEIU Local 668, said in a statement that the proposal would lead to increases in property taxes.

"Forcing new hires into risky 401(k)-type plans will bleed the pension system dry and make taxpayers pay for billions of dollars in unnecessary costs," she said.

Mike Crossey, president of the Pennsylvania State Education Association, asked legislators to look at actuarial studies commissioned by the two pension systems.


Karen Langley: or 717-787-2141.


Create a free PG account.
Already have an account?