House considers change to pension system
June 26, 2013 10:40 AM

HARRISBURG — A House committee on Tuesday endorsed legislation to shift Pennsylvania’s major public pension systems to 401(k)-style plans for newly hired employees starting in 2015, a concept previously endorsed by a Senate panel, but the financial implications remained unclear.

A solidly Republican majority on the State Government Committee voted to push the legislation to the House floor over the objections of Democrats who said it was unfair to state workers and school employees.

Republicans said the new system would put Pennsylvania’s public pensions on equal footing with the majority of private-sector employees and provide more certainty about the state’s pension costs. It would place public employees “on a trajectory where politicians can’t screw it up any more,” said Rep. Matt Gabler, R-Clearfield. “They will be in control of their own accounts.”

Republican Gov. Tom Corbett said the vote “further demonstrates the Legislature’s commitment to achieving pension reform in Pennsylvania.”

Rep. Mark Cohen of Philadelphia, the panel’s ranking Democrat, said the legislation would reduce pensions for future employees and lead to pension disparities among employees doing similar jobs. He called it “a terrible step in the wrong direction.”

Corbett has proposed cutting the future benefits of more than 370,000 state employees and school employees by $12 billion over 30 years while phasing out the current conventional pension plans.

But his plan drew threats of a lawsuit by unions and opposition even among some leaders of the Legislature’s GOP majority.

Now, less than a week before lawmakers are scheduled to begin their summer break, the House and Senate committees have embraced only the 401(k)-style change in pension plans for new hires and there are still differences to be ironed out.

For example, the Senate bill would preserve the existing defined-benefit plan for about 15,000 current and future state police officers and prison guards. The House legislation would require new hires in those positions to switch to the new plan but guarantee them more generous state contributions than other employees receive.

At a meeting later in the day, the state agency responsible for reviewing pension legislation was unable to provide much clarity on the costs or savings associated with the proposed switch in retirement plans. The Public Employee Retirement Commission decided to compile analyses by its own actuary and outside actuaries in its note on the two House bills, leaving it up to legislators to sort out the often contradictory conclusions. The commission planned to take up the Senate proposal separately today.

James McAneny, the pension commission executive director, said the bills surfaced too late to allow more thorough scrutiny.

“We are not arbiters of actuarial disagreement. That’s not what we’re geared up for. That’s not what we have the budget for,” McAneny said.

The Corbett administration projects long-term savings from the introduction of a mandatory defined-contribution plan, but unions claim that phasing in the new system while phasing out the current one could substantially increase costs.

Rep. Glen Grell, who chairs the House Republicans’ pension reform task force, says closing the defined-benefit system carries a cost of $30 billion or provides savings of at least $3 billion, depending on whose analysis is used.

“I just don’t see how we can move forward this week,” the Cumberland County Republican said.

Pennsylvania AFL-CIO President Rick Bloomingdale said the commission supports organized labor’s claim that switching pension plans would increase underfunding in both of the major public pension systems and reduce employees’ retirement security.

“It’s time to keep the promises made to these workers by protecting their retirement security now and in the future,” he said.

If a new pension system is approved, it would take effect July 1, 2015, for members of the Pennsylvania School Employees’ Retirement System and Jan. 1, 2015, for members of the State Employees’ Retirement System.

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