HARRISBURG — A major challenge facing Gov. Tom Corbett as he tries to get a 2014-15 budget approved is figuring out what changes can pass the Legislature for the two large public-sector pension plans that cover state government and public school employees.
The administration wants to avoid hundreds of millions in pension contributions over the next few years while directing future hires into some sort of new plan. It looks increasingly likely his proposal would combine aspects of a traditional defined-benefit plan with elements more like a 401(k).
The plans are significantly underfunded for several reasons, including generous benefit increases voted by the Legislature about a decade ago, decisions to delay making payments sufficient to keep the plans solvent and the recent Great Recession that took an enormous bite out of investment earnings.
Corbett pursued pension changes during last summer’s budget talks, but was ultimately stymied. In the weeks since the idea was raised again during his budget address last month, Corbett and his aides have been pressing the case even though they have yet to lay out a plan with all the specifics.
“He has said over and over and over that it has to be solved or the state is never going to be back to full health,” his chief of staff Leslie Gromis Baker, said Thursday. “And just because we’re not talking publicly about things, doesn’t mean we’re not working on them.”
Pension questions arose repeatedly during the recently completed budget hearings, and on Thursday, Corbett’s budget secretary, Charles Zogby, said the administration was working with a “core group” of lawmakers to nail down a specific proposal.
The administration has talked about a mechanism known as “tapering the collars,” or a temporary reduction in how much the state and school districts are required by law to pump into the two big plans, the State Employees’ Retirement System and Public School Employees’ Retirement System. Zogby said the goal is to save about $170 million for the state and $130 million for the schools in the budget year that begins July 1.
The additional costs would be made up over 30 years by gradually moving employees, as new hires come on board, into a less expensive retirement plan. Although the changes would buy some time, high pension payments will remain and will be a headache for taxpayers for decades to come.
“The reality is you have a $50 billion unfunded liability,” Zogby said after a House Appropriations Committee hearing on Thursday. “There’s no magic wand that’s going to make an unfunded liability of that size go away.”
The Pennsylvania School Boards Association has been working with the administration but has not put its support behind any specific approach, said spokesman Steve Robinson.
“We have not come out and said, ‘yes, collars,’ or ‘no, collars,’” Robinson said. “It needs to be looked at in the big picture of everything together — not just the collars by themselves.”
Several years of financial crisis have reduced the options for school districts to cope through cuts, Robinson said. And the school budget year, like the state’s, starts July 1, so districts would like to get a sense of what is going to happen as soon as possible.
No matter what the governor and lawmakers do, schools face a lot of pain in the coming years, Robinson said.
“And unfortunately, school districts have no choice, or few choices I should say, in dealing with the rate increases, and really none of them are that palatable,” Robinson said.
Rep. Joe Markosek, the ranking Democrat on the House Appropriations Committee, said most members of his caucus think a 2010 law that took steps to delay some pension costs and pare back the benefits of future employees needs time to work. They are very doubtful the future savings Corbett sees will make up for the short-term savings the governor wants.
“The governor just wants to add more debt to the problem — that’s the way we see it,” Markosek said.
Senate Republicans plan to meet on the topic when they reconvene in about a week, said Majority Leader Dominic Pileggi, R-Delaware. Pileggi said he supports moving away from defined benefit pension plans, but was noncommittal about how much less the state and school districts would have to pay under a restructured system.
“It’s early in the budget process, and it really is too early to make final judgments on the question of exactly what our pension contribution should be from the general fun to the pension fund,” he said.
“It may be what the governor has proposed,” Pileggi said. “It may be a different number. I’m certainly not ready to make a final decision on that at the end of February.”