PA senators aim to put all new state workers in 401(k) plan
Pennsylvania would become the fourth state in the nation to set-up a 401(k) plans for new hires
HARRISBURG – A pared version of a Republican-backed public pension overhaul would move most newly hired state workers and public school employees into a defined contribution pension system, starting in 2015.
Already, the plan is being hailed as a “historic step” for Pennsylvania, which would become just the fourth state to transition public employees to a defined contribution system — similar to what is commonly found in the private sector.
State Sen. Pat Browne, R-Lehigh, the bill’s sponsor, said the changes are “tremendously significant.”
“This bill is about a plan design for the new worker coming in and what the risk profile is for the commonwealth for that new worker,” he said. “This is a lot better.”
Under the current defined benefit system, state taxpayers are on the hook to make up for contributions when investment returns fall short of the pension funds’ goals. In a defined contribution system, those extra costs instead fall on the workers.
The state Senate could vote on the bill as early as Monday, after the Judiciary Committee approved it by the slim margin, 6-5.
Democrats opposed the bill in committee Wednesday.
“This is not pension reform, this is ideological shifting,” said state Sen. Rob Teplitz, D-Dauphin. Since the parts of the bill that would have saved money in this year’s budget were removed, there was no reason to rush the bill through before the June 30 deadline, Teplitz said.
The Senate plan leaves out changes to the benefit structure for current employees and eliminates changes to how the pension benefit is calculated – two big parts of the overhaul Corbett outlined in February.
But if the governor wants to get a pension bill finalized along with the state budget this year, it seems the Senate plan is the product he’ll have to take — or leave.
“That’s as far as it will go in the Senate,” Senate Majority Leader Dominic Pileggi, R-Chester, said Tuesday as the bill was being crafted behind-the-scenes.
The governor’s team seems to be fine with that.
Kevin Harley, Corbett’s spokesman, described the limited reforms in the Senate plan as “historic,” noting only three other states have taken steps to move employees into the more affordable defined contribution plans. A spokesman for the governor’s budget secretary pointed to the expected $2 billion to $3 billion in long-term savings from setting up the new plan.
But there are potential costs, too. Since new hires will be moved to a different plan, the state will have a limited number of years to pay down the existing debt to current workers and retirees, rather than being able to defer those payments in perpetuity. Opponents of the plan say that shift in costs could lead to a $50 billion tab for taxpayers.
Advocates of the change say those costs are less than the ever-growing unfunded pension liability, which will hit $67 billion within five years.
The Senate plan also removed a Corbett-proposed measure that would have allowed the state to contribute less to the pension plans this year – continuing a long tradition of underfunding the systems.
But state police officers and corrections officers will be exempt from the defined contribution plan and will remain in the existing SERS plan.The plan includes about 4,000 state police officers and 11,000 corrections officers.
“Carving out a special class is, I think, a mistake,” said state Sen. John Eichelberger, R-Blair. He said he supported the bill in the interest of moving the other reforms forward.
Browne said there was interest within the Republican caucus to leave law enforcement officers out of the reforms, mostly because state police officers do not receive Social Security benefits.
Unions opposed to the governor’s plan had promised to sue over any changes to current employees’ benefits, which, they said, would constitute a breach of contract.
State Sen. John Blake, D-Lackawanna, voted against the bill Wednesday morning, but he acknowledged that changes made by the committee eliminated the risk of the bill going to court.
Creating a new defined contribution system will do nothing to address the existing $47 billion pension obligation the state must fulfill to current workers and retirees. That total will grow to more than $65 billion within a few years.
Boehm is a reporter for PA Independent. He can be reached at Eric@PAIndependent.com