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Gov. Tom Corbett and two Republican lawmakers paint a picture of dire consequences that lie ahead if the pension overhaul they are proposing doesn’t become law.
Teachers will face layoffs. Class sizes increases. School property taxes increasing by double digits every year. State government services being curtailed.
If the bill for the state and school employees’ pension systems’ $45 billion unfunded liability were called due, Corbett said it would require a payment of nearly $9,500 per Pennsylvania household.
“Ready to write your check?” he said.
Sen. Mike Brubaker, R-Lancaster County, and Rep. Chris Ross, R-Chester, joined with Corbett at a news conference today in the Capitol Media Center to announce the introduction of a pension reform plan crafted by the Corbett administration.
But its detractors – including union officials, a top Democrat and a key GOP House member – were at the ready to criticize the plan that some insist cannot pass constitutional muster in the courts.
The plan, if enacted, was described by Brubaker as being “the most comprehensive pension reform package in the United States of America.” The Senate Finance Committee chairman said he plans to hold a hearing on the plan soon.
The plan, as described by Ross, doesn’t touch benefits of current retirees or those already accrued by current existing employees.
It moves future state and school employee hires automatically into a defined contribution, or 401k-style pension plan, like many private sector employers offer.
It also lowers future pension benefits for the more than 370,000 current state and school employees, starting in 2015, to produce a savings of $12 billion over 30 years.
And it limits the rate of growth in the state contributions to the pension system to provide some budgetary relief for roughly the next five years.
Corbett said the latest revenue reports that appear less rosy than had been forecast heightens the need for freeing up some money in next year’s budget by lowering pension costs.
“After considering all the options, this strikes me as being the most complete and effective option on the table,” Ross said. “People need to hear the true facts of what happens if we don’t take action.”
He urged his legislative colleagues to convey to public employees in the pension system that as taxpayers too, there’s more at stake here than what will happen to their pension if no fix is made.
Still, the plan faces many challenges.
Senate Majority Leader Dominic Pileggi, R-Delaware, said the Senate may limit its focus to new hires because of questions about the legality of Corbett's far-reaching proposal on current employees.
Rep. Glen Grell, R-Hampden Twp., who headed a House Republican task force looking at the pension issue, is convinced a better solution is out there.
While doubtful a comprehensive plan could be enacted by the end of June, he said he would encourage Corbett to call a special session in September to focus on pension reform.
Among the shortcomings that cost the governor's plan his support, Grell said, is its failure to include a pension obligation bond to help pay down a portion of the unfunded liability.
Grell said unions might see that as making up for the 10 years the state contributed nothing to the pension plans, and be willing to make concessions. He also was critical of the administration’s failure to engage public employee unions in arriving at a plan.
Another part Grell disliked was its further underfunding of the pension plans by reducing the state’s contribution rates, taking them below the already lowered rates set in a 2010 pension reform plan that he helped craft.
In a conference call with reporters, union officials rejected the notion that any further changes were needed and said the state should just ride out the ones enacted in 2010.
State Treasurer Rob McCord said he could support Grell’s notion of borrowing money to help pay down the unfunded liability provided the environment was favorable to borrowing, which he said it is right now.
But beyond that, he said coupled with the 2010 reforms, he thinks some payout changes could be enacted and that would take care of the problem.
Pennsylvania State Education Association President Mike Crossey faulted Corbett for his unwillingness to live with the reforms enacted in 2010 and refusal to tap new revenue sources to help fund the state's budgetary obligations.
“Hardworking Pennsylvanians should not have retirement earnings cut because of political irresponsibility,” Crossey said.
Associated Press contributed to this story.
Sen. Mike Brubaker, R-Lancaster County, and Rep. Chris Ross, R-Chester County, are taking the lead on one of the big issues in this year’s 2013-14 budget debate.
They are circulating identical co-sponsorship memos for pending legislation that would mirror the governor’s pension proposal in February.
Neither was immediately available for comment on when the bills could be introduced.
Together, the State Employees’ Retirement System and Public School Employees’ Retirement System have an unfunded liability of $47.4 billion.
Corbett called for legislation that would move new employees into a defined-contribution system in 2015.
The governor also wants to change the formula for future benefits in current employees’ plans. Beginning in 2015, he has proposed reducing the multiplier used to determine future benefits by 0.5 percent. “Final salary” under the Corbett model would be based on a five-year average rather than the current three.
Pensionable compensation would be capped at 110 percent of the average salary of the previous four years, while the ceiling on pension income would be set at the Social Security wage base, which is $113,700 for 2013.
Meanwhile, the 2013-14 budget would reduce the annual increase in the employer contribution limit to the pension funds to 2.25 percent, instead of the 4.5 percent increase scheduled to take effect. That amount would increase by 0.5 percent per year until it reaches 4.5 percent again.
“Collectively, without these needed reforms, pension costs will consume approximately 60 percent of all new revenues in the 2013-14 fiscal year,” the memos state. “That translates to more than $500 million, leaving little to fund the growth in core programs and services.”
The Senate is in session today and tomorrow, while the House comes back May 6. The 2012-13 fiscal year ends June 30 and the governor has said he wants pension reform included in the 2013-14 budget.
From the Keystone Research Center