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Two Pension Bills Sitting in Pennsylvania Legislature Likely to Resurface In 2015

Pennsylvania’s outgoing governor, Tom Corbett, made reforming the state’s pension system his top priority over the last year. But his plan – which would shift new hires into a “hybrid” plan with characteristics of a 401(k) – failed to enthuse most legislators.

Still, two pension bills are still sitting in the legislature, and they are likely to be brought up again in 2015. The first bill mirrors Corbett’s “hybrid idea”. As described by the Scranton Times-Tribune:

The hybrid plan, proposed by state Rep. Seth Grove, R-York, would maintain defined benefit plans for current employees and retirees and shift new hires into a plan that has features similar to 401(k) plans.

The proposal has several provisions to help municipalities reduce pension deficits, including guaranteeing a rate of investment return and allowing any excess earnings to be used to reduce the pension plan’s unfunded liabilities, said Rep. Grove.

[…]

The bill was introduced in the last legislative session, but never made it out of the Local Government Committee. Rep. Grove said he plans to reintroduce the bill in the next session.

The other bill takes a different approach. From the Times-Tribune:

The other bill focuses on reforming Act 111, which requires binding arbitration when a municipality is unable to reach a contract with its police or firefighters unions.

State Rep. Rob Kauffman, R-Chambersburg, introduced a bill last year that would, among other things, require an arbitrator to consider a municipality’s ability to pay when issuing an award. It did not make it out of committee, but is expected to be reintroduced this session, said Rick Schuettler, executive director of the Pennsylvania Municipal League, which supports the legislation.

Municipal officials statewide have long-complained that binding arbitration is stacked in favor of the unions, with arbitrators often issuing excessive awards.

How likely are these bills to gain any traction? The second one has the better chance, because incoming Gov. Tom Wolf is opposed to changing the pension system to a “hybrid” plan.

Pennsylvania Pension Contribution To Rise By $466 Million in 2015

Pennsylvania’s required annual contributions to its two pension systems are set to grow by $466 million next year – bringing the state’s tab in 2015 to over $2 billion.

The information was revealed by the state’s budget secretary during an annual update on the state’s fiscal condition.

From the PA Independent:

State-level contributions to Pennsylvania’s two pension plans will have to climb by an estimated $466 million in the next budget, after an increase of about $520 million this year. Next year could be considered the mid-point of a decade-long “pension spike” that sees retirement costs consuming larger and larger shares of the state’s spending each year.

Budget Secretary Charles Zogby of Gov. Tom Corbett’s outgoing administration outlined the bad news this week in an annual mid-year update on the state’s fiscal situation.

After four years of seeing pension costs grow — the state spent about $500 million on pensions in the last budget before Corbett took office, compared to more than $1.7 billion this year — and making limited headway on any changes to how the state pays for its employees’ retirement, the governor’s team will soon hand responsibility to Wolf.

[…]

The pension crisis has its roots in a series of decisions made by three different governors and state legislatures between 2001 and 2003. A series of changes to the pension plans increased benefits without asking state workers to contribute more towards retirement, boosted retirement benefits for those who were no longer working at all and allowed the state to take a decade-long “pension holiday” without paying for those increased costs.

That pension holiday ended in 2011, leaving first Corbett and now Wolf holding the bag.

It was also revealed that pension payments could rise above $3 billion annually by 2019.

Pennsylvania Lawmakers Mull Taking Up Pension Reform During Lame Duck Session

Tom Corbett has until January 20 before Tom Wolf takes over as governor of Pennsylvania. Corbett has spent the last year pushing for pension reform, but the proposed bills never gained traction in the legislature.

Now, a handful of lawmakers are considering quickly putting together and pushing through a pension reform bill — although the odds of it coming together so quickly are unlikely.

From the Pennsylvania Independent:

There’s still technically time for a final drive to pass legislation near and dear to conservatives. Whether lawmakers and outgoing Gov. Tom Corbett use it or just take a knee is the question.

State Sen. Jake Corman, the new Republican majority leader in his chamber, hasn’t ruled out having session days in the two weeks that fall between new lawmakers being sworn in Jan. 6 and Democratic Gov.-elect Tom Wolf taking office Jan. 20.

But, Corman told the PA Independent on Monday, it’s “highly, highly unlikely” legislation as complicated as liquor privatization or pension reform could be ready to sign before Corbett leaves office.

“We may get them started,” said Corman, a Centre County Republican who chaired the Appropriations Committee before ascending to floor leader earlier this month.

For anything to get to Corbett’s desk before his term ends, the state House would also have to convene, and legislation would have to clear both chambers. There’s time for it to happen, but bills would have to move quickly.

State Rep. Dave Reed, R-Indiana, the new House majority leader, has read about Corman’s comments, but said there have been no discussions in the House about a topic that’s quickly become political water cooler talk.

“It seems like an awful lot of folks are talking about it,” Reed said. “I think more folks outside the building than inside the building are talking about it at the moment.”

State Rep. Fred Keller, R-Snyder, said there has been “scuttlebutt” among rank-and-file lawmakers about the possibility of convening during the two-week period known as interregnum.

Keller would “absolutely” be in favor of it, he said, especially if pension reform is addressed. He also sees the controversial paycheck protection as possible legislation that could arise in the final weeks before Wolf takes over.

At least one lawmaker wouldn’t be on board with pushing through pension reform before Wolf takes officer. From the Independent:

Senate Minority Leader Jay Costa, D-Allegheny, has already sounded alarms that having a session before Wolf takes office would be “inappropriate, unprecedented and inexcusable.”

“The ill-conceived idea to empower and use an unaccountable governor in his last days in office to revive already rejected policies would be viewed as an act of desperation and a serious blow to reform,” Costa said in a written statement. “I would be very surprised if Governor Corbett would allow himself to be used by Republican leadership in this way.”

What Tom Wolf’s Win Means For Pennsylvania Pensions

Tom Wolf and Tom Corbett had two very different visions for Pennsylvania’s pension system. If newly-elected Governor Wolf attempts to reform the state’s retirement system, it will look very different than what Pennsylvania residents have experienced over the last few years under Corbett.

If Corbett had won, he would have pushed the legislature adopt a “hybrid” pension plan that incorporates qualities of a defined-benefit plan and a 401(k) plan.

Described by Institutional Investor:

In the 2013 legislative session, Corbett sought to pass pension reform as part of a package of three initiatives (the other two involved privatizing state liquor stores and a state transportation funding plan). Corbett’s pension plan would have enrolled future employees in a defined contribution plan and lowered future defined benefit payouts for current employees. Corbett’s office estimated that these changes would save the state $12 billion in employer contribution costs and $40 billion in plan costs over the next 30 years.

[…]

Corbett’s pension proposal did not pass the legislature. This June Representative Mike Tobash, a Republican, proposed a hybrid pension plan in which new employees would be enrolled in a combined defined benefit, defined contribution fund. This would start the state on the road to a DC system but lessen up-front costs by not shuttering the DB plan.

[…]

Almost immediately, Corbett came out and said he was in “full support” of Tobash’s plan. If reelected, Corbett says, he will call a special session of the General Assembly to tackle the pension problem. Opponents of the plan have taken to calling the plan the Corbett-Tobash pension plan.

But Tom Wolf doesn’t support the hybrid plan. What will the pension system under Wolf look like? He hasn’t offered much in the way of specifics, but he staunchly supports the state’s defined-benefit system. From Institutional Investor:

According to his campaign, Wolf “absolutely opposes changes to current employees’ pension plans, and he believes that a defined benefit retirement plan is the most effective tool for ensuring that our public workers have a financially secure retirement.” Wolf believes that to attract workers and create good private sector jobs, Pennsylvania must offer an attractive and competitive compensation package, which includes a defined benefit pension.

If elected, Wolf has said he will work with the legislature to find a solution to the pension-funding problem. But exactly what that solution might look like, with a governor so “absolutely opposed” to benefit cuts, remains to be seen. The General Assembly is likely to remain Republican, meaning the most probable scenario is a legislature favorable to benefit reform and a governor who is not. Unable to find a solution under four years of a pro-reform governor, a different approach maybe can work.

Pennsylvania’s pension systems are 63.9 percent funded, collectively. Pension liabilities have been the subject of several credit rating downgrades for the state.

Video: The Differences Between Tom Corbett And Tom Wolf On Pensions

News 8 recently interviewed both Pennsylvania gubernatorial candidates. Here’s the resulting segment — Corbett and Wolf talk about pension reform, benefit cuts and how they plan to address pension funding if elected.

A quick summary of where the candidates stand on pensions, from the Associated Press:

-Corbett says the burgeoning cost of Pennsylvania’s public pensions is a crisis that requires prompt, decisive action. Wolf argues that it’s a problem that can be resolved in the years ahead.

-Corbett wants to scale back pensions for future school and state employees as a meaningful step toward savings. He says the taxpayers’ share of the pension costs for current employees — $2.1 billion this year — is crowding out funding for other programs and helping drive up local property taxes.

-Wolf contends that the pension problems are partly the result of the state contributing less than its fair share of the costs for nearly a decade and that a 2010 law reducing pension promises to future employees and refinancing existing obligations needs more time to work.

Corbett Says He’d Form Pension Commission If Elected To Second Term

We’re three weeks away from the gubernatorial election and incumbent Pennsylvania Gov. Corbett is trailing big in most polls.

The theme of his campaign has largely been pension reform, and he has been doubling down on that stance lately. On Wednesday, Corbett told a newspaper that, in addition to calling a special legislative session to address pension reform, he would also form a commission to study reform ideas.

From PennLive:

In an interview with PennLive’s editorial board on Wednesday, Corbett talked of forming a commission to study pension reform in advance of calling a special legislative session.

Corbett said he would establish a commission consisting of state and local government officials and union representatives to come up with some recommendations to address pension costs.

Those costs are growing in the state budget by $610 million annually until they plateau at $3.3 billion in 2017-18. Once the commission has completed its work and come up with some recommendations of what might work, he would call a special legislative session to focus on this issue.

“The legislators aren’t experts [on pension reform] by any stretch of the imagination and I’m not disparaging the legislators. This is a very complicated issue. Let’s sit down. Let’s get this studied. And let’s be willing to have the political courage to do it,” he said.

Taking a shot at his opponent who has downplayed the severity of the pension issue, Corbett said, “That’s more than a problem. That’s a crisis.”

The commission would likely look something like New Jersey’s Pension & Health Benefits Review Commission.

See further coverage of Pennsylvania’s governor race here.

Corbett: “Entrenched Interests” Preventing Pension Reform in Pennsylvania

Pennsylvania Gov. Tom Corbett (R) is trailing by double-digits in many polls to opponent Tom Wolf (D) – but his campaign strategy of pushing the need for pension reform appears to be unchanged.

Corbett has been the most vocal critic of his state’s pension system, but most of his fellow lawmakers – and voters, for that matter – have not reciprocated that enthusiasm for major reform.

On Monday Corbett said that “entrenched interests” are preventing pension reform. And those interests, according to the governor, have seeds in both parties.

Reported by the Intelligencer:

“There are entrenched interests out there,” the governor said. “The public sector unions are all against change … There are Republicans that don’t like me. I’m pushing change. It’s very hard to get change in Pennsylvania.”

[…]

Corbett traces the current pension problem to 2001.

That’s when the state Legislature boosted the retirement package for state lawmakers and judges by 50 percent and increased pensions by 25 percent for 300,000 active state workers and school employees. Corbett wants to roll back those increases to pre-2001 levels for current employees — an annual multiplier of 2.0 rather than 2.5 for employees and from 3.0 to 2.0 for lawmakers and judges — and place new employees in a 401(k) style retirement plan.

But the Legislature, backed by the might of public section unions, has stood in his way.

“We said to present-day employees, going forward, that we need to ratchet it back to two,” Corbett said of the annual multiplier. “Did you earn that (2.5)? I don’t think so. You did nothing new.”

Corbett said he favors the state rolling back the benefits and letting the courts decide when the unions sue. The real problem for taxpayers, he said, would occur once the issue landed in court because the judges who benefited from the enhanced pensions would be asked to rule on the matter.

“What judge in this state can hear that case?” he asked. “It’s an economic conflict of interest. … People should be upset with that. I say, let’s try it.”

Corbett re-iterated that, if re-elected, he would call a special legislative session to push through pension reform measures.

Fact Check: Has Tom Corbett Been Shorting The Pension System?

Tom Corbett has used the campaign trail to paint himself as a pension reformer – Corbett, the incumbent governor of Pennsylvania, says the pension system needs to be overhauled and supports a plan to shift public workers into a 401(k)-style plan.

His opponent, Tom Wolf, disagrees. Wolf says the problem isn’t the current system—it’s the current governor. He says the system’s current funding problem stems from Corbett’s failure to make required payments into the system.

The issue was brought up during a debate Wednesday night. WESA reports:

Wolf argued that the pension system itself is not flawed, but that the state needs to put more money into fully funding its pension obligations.

“Governors have not adequately paid into that fund,” Wolf said. “We need to figure out a way to do that, pay that debt, because that balance keeps coming up. I plan to do something about that. I will not keep delaying payment, I will do something.”

Corbett took issue with Wolf’s assertion that his and previous administrations have not adequately paid into the system, and instead said it’s the system itself that needs to be overhauled.

“We do have to, though, bite the bullet and start reforming how we’re paying into that system, rather than continuing to say we’re just going to continue to pay at $610 million new dollars each year for the next, I think it’s 25 years,” Corbett said.

Corbett seemed to dodge the issue of failing to pay the state’s actuarially required contributions (ARC). But Wolf has a point.

Since 2008, Pennsylvania has consistently shorted its largest pension funds.

The state has gone above and beyond when it comes to making payments to the Municipal Retirement System (MRS); but that system is also much smaller than the others.

Both candidates have points here. Wolf is right that Corbett has shorted the pension system. But while making full payments would be a step in the right direction, it wouldn’t solve the system’s funding crisis on its own.

Think Tank: Pennsylvania Lawmakers Need To Reform Pensions – Now

Katrina Anderson, a senior policy analyst and director of government affairs for the Commonwealth Foundation, has published an op-ed in today’s Patriot-News urging Pennsylvania lawmakers to “reform the [pension] system now”.

Ms. Anderson explains her support for a solution similar to Gov. Corbett’s plan, which would move new hires into a 401(k)-style plan. An excerpt from the op-ed:

The first step lawmakers need to take is changing state-level retirement plans for themselves and new teachers and government workers. This would not erase our $50 billion pension debt, but it would prevent the problem from getting worse while protecting families from higher taxes and preserving the system.

Our current pension system has a huge flaw: It’s too easy to boost benefits when times are good and skip payments when they aren’t.

Moving new employees to a well-designed 401(k)-style plan would prevent deliberate underfunding and make “kicking the can down the road” impossible.

Reform would also benefit employees. As workers change jobs—an average of 10 times in a career—retirement portability and personal ownership of investments have never been more important. Such flexibility simply can’t be found in the current system.

But flexibility is the hallmark of 401(k)-style plans, which are also always fully funded—meaning they carry no debt—and offer predictable costs.

Not only has most of the private sector already left the old system behind—including the Wolf Organizaiton, founded by Democratic gubernatorial candidate Tom Wolf—but many states have as well. Since 1996, 18 states have converted to plans which build on the 401(k) model.

There are several bills in the General Assembly that would address this crisis for new employees, including plans that combine aspects of the current system and 401(k)s into what’s commonly called a hybrid plan, as well as reforms addressing the municipal pension crisis.

Conventional wisdom says lawmakers won’t do anything significant shortly before an election. But many statesmen in the legislature are fighting on behalf of retired teachers like Bill Frye to address this issue now.

They should understand—as property tax payers already do—that the stakes are too high to play politics and ignore real reform.

Anderson points out that pension costs have risen more than $600 per household since 2008—and are projected to rise another $550 per household in the next five years.

Read the entire column here.

Pennsylvania Candidate Wolf Doubles Down on Pension Stance

Pension reform has been a center-stage issue since May in the race for Pennsylvania governor.

During an interview this week with the Philadelphia Public School Notebook, Democratic candidate Tom Wolf forcefully doubled down on his position that pension reform isn’t the state’s fiscal priority. The exchange:

Q: How is the escalating cost of pensions impacting school financing in Pennsylvania, and what do you think should be done about it?

A: Our current pension situation is the direct result of almost 10 years of leaders in Harrisburg kicking the can down the road and the state paying less than its fair share. What we’re seeing from Gov. Corbett is more political games – he is pushing a plan that creates no immediate savings for taxpayers.

As governor, I will let Act 120 [a 2010 law reducing pension benefits to new employees] work and create innovative solutions that are fiscally responsible and fair and beneficial to taxpayers and future employees.

A further explanation of how the two candidates differ on the issue of pensions, from the Times-Herald:

Corbett says the burgeoning cost of Pennsylvania’s public pensions is a crisis that requires prompt, decisive action. Wolf argues that it’s a problem that can be resolved in the years ahead.

Corbett wants to scale back pensions for future school and state employees as a meaningful step toward savings. He says the taxpayers’ share of the pension costs for current employees — $2.1 billion this year — is crowding out funding for other programs and helping drive up local property taxes.

Wolf contends that the pension problems are partly the result of the state contributing less than its fair share of the costs for nearly a decade and that a 2010 law reducing pension promises to future employees and refinancing existing obligations needs more time to work.

Act 120 was a 2010 law that reduced pension benefits for some employees but kept intact the current defined benefit system. Wolf has been adamant that the law needs time to work.

Corbett wants to shift new workers into a 401(k)-type plan.

Photo Credit: “TomWolfYuengling” by Tom Wolf. Licensed under Creative Commons Attribution 2.0 via Wikimedia Commons

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