PA Senate Discussing Move to 401(k)-Style Pension Plans

Published June 26, 2014

Republican lawmakers in the Pennsylvania House spent the past week trying to cobble together enough votes to overhaul the state pension system.

With that effort seemingly stalled — for now — the Senate is preparing to take a crack at the same issue.

Members of the Senate GOP behind closed doors are discussing a pair of pension proposals, and one of those bills is scheduled for a hearing in Senate Appropriations Committee. That could happen as early as today, or perhaps not until the weekend — the state Senate has scheduled session days all the way up to the June 30 budget deadline. Both would make changes for future state workers by incorporating at least some elements of 401(k)-style retirement plans.

“There’s a lot of support in our caucus for the idea of moving all new state employees to a defined contribution, 401(k)-style plan, as is used throughout the private sector,” said Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi (R-Chester).

The current state pension system is a defined benefit system, in which retirees’ benefits are determined by a fixed formula based on years worked, final salary and a multiplier depending on job title. A defined contribution system allows workers to invest their own earnings along with an employer contribution.

Two Proposals

One of the proposals the Senate is considering would include a re-worked defined benefit system, including elements of a 401(k)-style defined contribution plan — essentially similar to the proposal from state Rep. Mike Tobash (R-Schuylkill) that stalled in the House, Arneson said.

The second plan, being pitched by state Sen. Mike Brubaker (R-Lancaster) would move all state workers and public school employees hired after 2015 into a 401(k)-style system and would close off the defined benefit pension systems to any new members. Current workers and retirees would continue to accrue and receive benefits from the current systems.

Brubaker’s bill has sat in the Senate Appropriations Committee since last June, when it was the subject of much debate before a similar budget-season push for pension changes was abandoned.

It’s likely to undergo changes in the committee or on the floor, if the Republicans can find a specific plan capable of winning 26 votes.

No Democrat Support

They probably can’t count on any support from the Senate’s 23 Democratic members.

“That’s not something our members are going to be supporting,” Senate Minority Leader Jay Costa, D-Allegheny, said of the Brubaker pension bill.

Costa and his fellow Democrats have opposed several efforts to switch new workers to a 401(k)-style pension plan, citing concerns about retirement security for public employees and pointing out that the switch would do little to address the state’s current pension crisis.

Pennsylvania’s two pension plans, the State Employees Retirement System and the Public School Employees Retirement System, are facing nearly $50 billion in combined unfunded liabilities.

That amount represents payments due to current workers and current retirees, so changes that only affect future employees will not change those obligations, and won’t produce any immediate budgetary changes unless lawmakers also tinker with contribution levels.

But advocates for a 401(k)-style state retirement system say it is necessary to ensure long-term fiscal stability for the state and to avoid making the current crisis worse.

Interconnected Issues

It’s not the only major issue in front of the state Senate. The state House passed the budget over to the upper chamber in 110-91 vote on Wednesday.

But the two issues are very much connected, at least for some policymakers in Harrisburg.

Gov. Tom Corbett last week threatened to leave a state budget unsigned unless lawmakers also passed a pension reform bill.

“If you want me to start considering anything else, we’ve got to start fixing,” Corbett said. “If we do nothing on pensions — I don’t see a start on fixing.”

Senate President Joe Scarnati (R-Jefferson) has called for switching all state lawmakers, judges and executive branch officials out of the current pension plans and into a 401(k)-style retirement system. Earlier this month, he said, doing so would “send a strong message that we’re serious about getting our finances under control” even though the change would have a minimal effect on the pension plans’ debt.

That element could be added to just about any pension plan, if the Senate decides to move forward with one.

Support Last Year

One hopeful sign the Senate might succeed where the House has so far failed: 26 members of the Republican caucus signed on as co-sponsors to a similar pension overhaul last year.

Then again, all those co-sponsored didn’t net any results for that bill. The next few days will reveal if Brubaker’s proposal — or any other — can find a way out of the upper chamber.

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