May 13, 2015

Senate Passes GOP Pension Restructuring Plan They Project Will Save $18.3 Billion

The Senate Republican plan to reform state and school pension systems-- Senate Bill 1 (Corman-R-Centre)-- passed the Senate Wednesday by a party-line vote of 28 to 19, according to Senate Republican Leaders.
This substantial legislation restructures the state’s two public employee pension systems – the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS) – in order to make them viable in the long term.
“Senate Bill 1 creates significant savings by restructuring the systems while reducing liabilities and preserving current employee retirement benefits. School districts will find themselves with additional resources to direct toward the classrooms, instead of simply raising property taxes,” said Senate Majority Leader Jake Corman (R-Centre). “Today we took an important step toward getting the taxpayers out of the risk business with pensions while shielding employees, taxpayers and retirees security from political risk.”
“Reforming public pension benefits is a primary goal for Senate Republicans as we look towards balancing the 2015-16 state budget,” said Senate President Pro Tempore Joe Scarnati (R-Jefferson).   “The pension crisis facing our state did not arise overnight and requires that we work together to enact responsible reforms in a strategic manner.  I am very pleased that Senate Bill 1 makes these necessary reforms, with lawmakers also leading by example and moving ourselves into a defined contribution plan upon re-election.”
With its projected $18.3 billion in savings by Republicans, Senate Bill 1 was said to provide six times more savings for the Commonwealth and school districts than the Governor’s proposal, which would increase the Commonwealth’s debt by $3 billion.
“Senate Bill 1 takes a vital step toward meaningful pension reform,” said Senate Appropriations Chair Pat Browne (R-Lehigh).  “I applaud my colleagues on passage of this important measure and look forward to continuing discussions on this legislation as it moves forward.”
“We must get taxpayers out of the risk business with pensions, and this legislation represents a responsible and fair first step toward that goal,” said Senate Majority Whip John Gordner (R-Columbia).
“Today’s vote is about the sustainability of the state’s pension system,” said Senator John Eichelberger (R-Blair). “SB 1 provides employees with new benefits, choices in benefits and ownership over their investments.”
The features of Senate Bill 1 include:
— All new state and public school employees will be enrolled in a mandatory, 401-k type Defined Contribution Plan, similar to those used by private sector workers.
— Members of the General Assembly, upon election or re-election, will be enrolled in the same Defined Contribution Plan as state and public school employees.
— Current employees’ previously earned benefits will not be changed.
— Current employees will then be able to choose between increasing their pension contribution or electing to lower their future benefits.
— There will be no changes to current retirees’ benefits.
— A Public Pension Management and Asset Investment Review Commission made up of investment professionals and retirement advisors, will be established to make recommendations to the General Assembly and the Governor. Among their duties will be to evaluate the performance of current investment strategies and procedures of both state retirement systems regarding rates of return and associated fees paid for fund management.
Restructuring the public pension system is not a new issue to the Senate.  Over the last two years the Senate has held numerous hearings on the issue, including one most recently last month. The information gathered during those hearings served as a valuable resource and led to the drafting of Senate Bill 1.
In addition, much of SB 1 mirrors that of SB 922 from 2014, which was thoroughly vetted by the Senate Finance Committee during public hearings.
“Pensions have been discussed in these halls for years. Today was the day we stopped talking and began taking action,” stated Corman.
A summary and Senate Fiscal Note are available.  The bill now goes to the House for consideration.
Senate Democratic Leader Jay Costa (D-Allegheny) said the Senate Republican pension reform plan that passed the Senate is illegal because it impacts benefits of current employees, is woefully short-sighted, and unfair to workers.
Sen. Costa challenged Senate Republicans in floor debate to reconcile well-established law with the proposal.  He said that the plan would be immediately challenged in court, cause a litigation explosion and compel taxpayers to cover back benefits.
The Democratic leader said that the Republicans abused the process in rushing the measure to the Senate floor for a vote.  Plus, he said that both Senate Democrats and Gov. Tom Wolf have offered responsible, constructive, constitutional proposals that would address high public pension costs reasonably.
Sen. Costa said the plan provided little relief even if the bill overcomes legal hurdles.  The projected savings for the teachers’ retirement system would be $3.1 billion and $600 million for the state employees system.
He said the measure does not address the unfunded liability in the pension funds that spiked because Pennsylvania failed to make its actuarially required contribution for 17 years.  Eighty-eight percent of current costs of the state worker and teacher retirement funds are to pay off the unfunded liability.  The plan adds a cash-balance plan for new hires but uses contributions from new hires into the fund to pay retirement benefits for others.   
“Senate Democrats believe that there are responsible pension reform plans that protect taxpayers and provide reasonable benefits for workers but the Senate Republican plan does neither, plus it is unconstitutional,” said Sen. Costa. “The Republican plan hurts current workers, devastates pension benefits for future employees and provides little in the way for relief for taxpayers.
“The plan puts new employees and future retirees into poverty and makes changes in public pension systems that are unreasonable.  The process that was used to pass this plan was flawed and rushed and the plan itself falls woefully short of any reasonable tests of legality or fairness.”  
Republicans Stand Together, Pass Pension Bill