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Pennsylvania Lawmaker Will Reintroduce Plan to Create 401(k) System for All New Public Employees

Pennsylvania State Rep. Warren Kampf says he will be reintroducing a bill that would significantly alter the states pension system.

The bill would create two new defined-contribution plans: one for state employees and one for school district employees.

All future state hires would be funneled into these 401(k)-style plans. In other words, the bill would block off the current defined-benefit pension system to all new hires.

Pennsylvania Gov. Wolf Open to Issuing Pension Obligation Bonds

New Pennsylvania Gov. Tom Wolf has already said he’ll be taking a hands-off, wait-and-see approach to pension reform.

He acknowledges that the system needs to improve its funding, but said he doesn’t think a switch to a 401(k)-type system is the correct way to approach reform.

A Wolf spokesperson, however, revealed this week that the Governor may be open to issuing pension obligation bonds to help pay down the state’s pension debt.

From the Daily Item:

As Gov.-elect Tom Wolf gets ready to wrestle a $2 billion budget deficit, some at the Capitol say the state should borrow money to relieve one of its biggest financial burdens — cash-strapped pensions.

Lawmakers on both sides of aisle have proposed using bonds to shore up the state’s retirement plans. Wolf is open to the idea, as well, said spokesman Jeff Sheridan, but is also willing to listen to alternatives.

It’s a concept that comes with risks — and controversy. Even advocates for the idea seem to embrace it only because no one has come up with a better one.

Annual costs tied to the state’s public employee pensions are expected to increase by more than $500 million in the coming fiscal year.

At least one lawmaker – Republican Rep. Glen Grell has proposed a plan for issuing bonds to fund the pension system.

But many other Republican lawmakers likely won’t be on board with the bond idea. A switch to a 401(k)-type system is still on the mind of many of those legislators.

New Congress Likely to Attempt Federal Pension Reform

The New Congress has already proved it has its eye on retirement benefits.

But even with lawmakers’ eyes locked on Social Security, there may be federal pension changes coming down the pipeline.

Many lawmakers are weighing changes to the federal pension system, and new legislation on that front could surface this year, according to two key committee chairmen.

The two lawmakers leading the push for federal pension reform are:

* Rep. Jason Chaffetz, R-Utah, the new chairman of the House Oversight and Government Reform Committee

* Rep. Mark Meadows R-N.C., chairman of a subcommittee of the Committee on Oversight and Government Reform that focuses on the federal workforce.

More on their plans from the Federal Times:

As the new Congress kicks into gear, lawmakers want to take another crack at reforming the civil service.

Rep. Jason Chaffetz, R-Utah, the new chairman of the House Oversight and Government Reform Committee, said he will look at reforming all aspects of the federal workforce, from hiring and firing authorities to pensions and pay.

“We have jurisdiction on the federal workforce and there is no doubt we are going to bring that up,” Chaffetz. “From soup to nuts: Everything from how we hire them on the back end to how we pay them out in the retirement system.”

[…]

As Congress kicks into gear, Meadows believes the committee will be working on legislation for at least some parts of civil service reform.

“I would be very surprised if there were not a number of legislative initiatives and certainly, as a subcommittee chairman, I am prepared to be very proactive,” Meadows said.

What might the reforms look like? A likely bet is legislation that would shift new federal hires into a 401(k)-type plan, as opposed to the current defined-benefit system.

The reforms might be rolled out slowly at first, and could be focused on a particular government agency to study the effects before implementing the reforms across all agencies.

The outgoing Postmaster General has even suggested that any pension reforms be “tested” out on the Post Office first.

The Postmaster said:

Outgoing Postmaster General Patrick Donahoe has called for an end to the defined-benefit pension system and instead shift to a 401(k)-style retirement policy. He said Postal Service reform could also serve as a precursor to governmentwide civil service reform.

“I would encourage Congress to view the Postal Service as a test bed or laboratory of change that might be applied to the rest of the federal government,” Donahoe said.

He said agencies need to be be able to control costs and plan for the future while getting the flexibility to experiment without rigid workforce rules and he said the Postal Service could be at the forefront of that change.

“In today’s world, does it really make sense to offer the promise of a government pension to a 22-year-old who is just entering the workforce? And how reliable is that promise?” Donahoe asked. “I’d like to see the Congress encourage much more experimentation at the federal level. “

No legislation has yet been proposed.

Photo by Bob Jagendorf via FLickr CC License

Questions Surround Bruce Rauner’s Pension Proposal, But Rauner To Be Mum on Specifics Until Court Ruling

Illinois’ pension reform law currently sits in legal limbo. But if the Supreme Court deems it unconstitutional, all eyes will shift to Illinois Gov. Bruce Rauner, who will need to propose a new solution to the state’s pension woes.

On the campaign trail, Rauner supported a plan to shift workers into a 401(K)-style plan. He has since softened his stance a bit, but hasn’t offered much in the way of clarification as to the specifics of his plan.

From the Chicago Tribune:

With Rauner taking over, the pension debt remains unsettled. As has been the case on many issues, the Republican has offered general answers about his preferences for dealing with public pensions and how he’ll respond if the new law is struck down.

“We have some very specific thoughts on that, but we’ll be developing those with the General Assembly,” Rauner said during a postelection visit to the Capitol. “We need a comprehensive, fair overhaul of the pension system, and we’ll make that a top priority.”

[…]

Asked recently if the state should begin working on a “Plan B” while the pension law is debated by the state Supreme Court, Rauner said his “preference is probably to wait until the Supreme Court rules, so we have some ground rules for what probably works and what won’t work. I think that’s a smarter way to do it.”

Would Rauner’s 401(k) plan work? Would it be constitutional? What are the specifics? And is that still his plan? From the Chicago Tribune:

In his successful campaign, Rauner spoke generally about wanting to shift public employees from receiving a defined pension benefit into becoming members of a defined contribution plan similar to a 401(k)-style system.

Rauner has said public workers should be able to keep the benefits they have already accrued, but, moving forward, go into a defined contribution system. He also has said public safety workers should stay in the current system. And, with 80 percent of public employees not eligible to receive Social Security, Rauner has said he favors some unspecified plan to create a retirement safety net.

But it’s unclear whether Rauner’s concept is constitutional, as he maintains, or how it would address the current unfunded pension liability since payments would go into a new retirement system rather than address the shortfalls in the current system.

“Not only does it not solve the problem, but it makes it worse in the near term,” Dye said. “Whatever the solution is will cost something, and I don’t know how it would be implemented. It’s hard to add (Rauner’s concept) up as a fiscal benefit for the state.”

Illinois is expected to make $6.6 billion in pension payments in fiscal year 2015. The state is saddled with over $100 billion of pension debt.

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

In Congress, Leadership Shifts Could Lead to Retirement Plan Changes

Republicans control both houses of Congress, and there are many leadership shifts underway at the committee level as well. These shifts open the door for changes to retirement plans coming from the federal level.

One idea sure to be brought up is Senator Orrin Hatch’s SAFE Retirement Act. From Pensions and Investments:

At the committee level, the change of leadership raises the prospects for serious consideration of new retirement ideas, like incoming Senate Finance Committee Chairman Orrin Hatch’s SAFE Retirement Act proposal, which would expand the use of multiple employer plans, allow public defined benefit pension funds to purchase private annuities, and create a “starter 401(k) plan” for small, private-sector employers.

Lawmakers could also take a closer look at defined-contribution plans and cash balance plans. From P&I:

As the tax reform debate heats up, “Republicans are going to want to cut expenses and raise revenue,” said Michael Webb, vice president of Cammack Retirement Group, Wellesley, Mass., a consulting firm specializing in defined contribution plans. “How do you do that? By changing things like deductibility on retirement plan contributions.”

Along with those discussions, “there might be opportunities in 2015 for retirement plan proposals that would enhance coverage and benefits,” said Kent Mason, an attorney at law firm Davis & Harman LLP, Washington, who is outside counsel for the American Benefits Council, Washington. He and others note that multiple employer plans enjoy bipartisan support in Congress, which could convince regulators to make them easier to create.

Both Republicans and Democrats would like to see more automatic enrollment and escalation in defined contribution plans. “This is showing up in bipartisan bills because (current default rates) are not high enough” for retirement security,” said Mr. Mason. “This is an area where I could see common ground.”

Hybrid retirement ideas like cash balance plans will come up early, starting with a Jan. 9 hearing on IRS regulations finalized in September for plan years after 2015. “I do think there is pent up demand for some type of DB (proposal),” said Alan Glickstein, Dallas-based senior retirement consultant at Towers Watson & Co. Hybrid pension plans for the military will also come up early in the year, when recommendations from the Military Compensation and Retirement Modernization Commission are due, sources said.

Read the full article here.