07 Jun 2012 — Bucks County Courier Times They cost the state $1.1 billion in this year's budget and are expected to cost $4 billion by 2016.
By Gary Weckselblatt/Staff Writer
Just days after Wisconsin Gov. Scott Walker fought off state employee unions to win his recall election and residents of two California cities voted to cut pensions for current workers, Pennsylvania Senate Republicans are proposing to change the state's pension system for new employees.
Senate Bill 1540, scheduled to be introduced Thursday afternoon by Majority Whip Pat Browne, R-16, and Majority Leader Dominic Pileggi, R-9, puts new employees and new lawmakers on a defined contribution plan, similar to a 401(k) or 403(b).
All four Bucks County area senators - Stewart Greenleaf, R-12, Chuck McIlhinney, R-10, Bob Mensch, R-24, and Tommy Tomlinson, R-6 - have co-sponsored the measure.
"What we're doing will begin to ease the pain in the future," Mensch said. "But we're still looking at that $5 billion problem down the road."
Pension payments are $1.1 billion in this year's $27 billion budget and projected to climb to $1.6 billion in 2012-13. By 2016, the number is estimated to rise to $4 billion.
"Significant policy decisions regarding Pennsylvania's pension system must be made soon," Browne said. "Without significant changes in the design of Pennsylvania's pension system, including a switch to a defined contribution system, the long-term costs will be unaffordable to Pennsylvania taxpayers."
In the House, state Rep. Scott Petri, R-178, is the primary sponsor of similar legislation. House Bills 551 and 552 establish a defined contribution plan for both the Public School Employees' Retirement System and State Employees' Retirement System.
"You have legacy costs that we can't afford," Petri said.
It's not only Republicans pushing the effort to shift away from the defined benefit plan.
State Rep. John Galloway, D-140, called the GOP proposal "the least we can do. It's a no-brainer and should have been done years ago. It's low hanging fruit."
Galloway said he called for it to get done in 2010 when the General Assembly adopted pension reforms. "I'm glad Senate Republicans agree with me," he said.
Two years ago, through Act 120, future employees and new lawmakers started to pay more money into their plans, while benefits were rolled back 25 percent to pre-2001 levels and the vesting period for both school and state employees increased from five years to 10 years.
While current lawmakers can retire after five years and collect a pension at any age, newly elected members now have to be 55 and be in the General Assembly for 10 years before collecting a pension.
The deal lessened the impact of a near-term property tax bubble, but cost homeowners more money down the road. Officials have described it as going from a 15-year to a 30-year mortgage. Your monthly payments are less, but you're paying for a longer period of time.
State Rep. Tina Davis, D-141, would consider going even further by changing pension benefits for current employees.
"I haven't seen the bill, but I just want to make sure taxpayers are protected," she said. "I think we need to look at more than new people."
That's what happened Tuesday in San Diego and San Jose, where more than two-thirds of the voters approved cuts to retirement benefits for city workers.
San Diego is imposing a six-year freeze on pay levels used to determine pension benefits unless a two-thirds majority of the City Council votes to override it. It also puts new hires, except for police officers, into 401(k)-style plans.
Under San Jose's measure, current workers have to pay up to 16 percent of their salaries to keep their retirement plan or accept more modest benefits. New hires would get less generous benefits.
The votes set the stage for potentially lengthy legal challenges by public employee unions. The measures are unusual because they address pensions for current employees, not just new hires.
McIlhinney said Senate lawyers have advised lawmakers that pensions can't be changed for people already in the plans. "I don't know if you can compare us to California," he said.
However, he said he could envision a plan that allows workers to lock in what they have accrued and move forward under new terms.
"There is a case to be heard about that but this is going to be a battle with unions," McIlhinney said.
Last week, Rick Bloomingdale, president of the Pennsylvania AFL-CIO, told the Tribune-Review that defined contributions plans are the "modern-day equivalent of the gold watch" for retiring workers.
With 401(k)s, employers are saying, "thanks for your service and don't let the door hit you on the way out," Bloomingdale told the newspaper.
Stephen Herzenberg, executive director of the Keystone Research Center, said while the state does face economic challenges, proposals like the one Senate Republicans will unveil Thursday "won't save money in long run and cost more in the short run."
"If you can't afford the current pension system, you can't afford an approach that could end up being more expensive."
He said not having money from new employees in the pension plan exacerbates the current pension problem "making the estimated shortfall that exists worse."
An economist, Herzenberg called it a "myth" that a 401(k) plan would save taxpayers money. He said individual accounts managed by a financial services firm will cost more in fees. "You're transferring money from Main Street to Wall Street," he said.
In addition, he said, public sector workers "make significantly lower wages on average compared to equivalent private sector workers."
Without a pension, he said, wages will have to rise to "attract and retain the workforce you need."
He criticized Gov. Tom Corbett's $1.7 billion, 25-year tax break for Shell Oil Co. plan for a planned petrochemical refinery in western Pennsylvania "while coming after the middle class in a partly invented crises."
"Bill would end pensions for new employees" Bucks County Courier Times 07 Jun 2012: A1