By Chris Comisac
HARRISBURG (June 8) – The state House of Representatives Thursday morning accomplished something it has been trying to do for several years which, during that time, involved some notable failures: pass a pension bill.
A bill that was fast-tracked this week, having been first introduced as a plan Sunday evening by the Senate, crossed the important finish line in the House Thursday, garnering a 143-53 vote.
The bill, once it gets signed in the Senate next week, will head to Gov. Tom Wolf who will sign it, according to his spokesman J.J. Abbott.
Not long after the House vote, Wolf said in a statement, “I look forward to joining members of the House and Senate, from both sides of the aisle, to sign this important bill into law.”
Senate Bill 1 would create a menu of retirement plan options from which new hires enrolled in the state’s two pension systems – the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS) – would be required to choose.
The three choices that would replace the current defined benefit (DB) plans for future employees are two different types of side-by-side hybrid (with both defined benefit and defined contribution elements) along with a defined contribution (DC)-only, similar to a 401k, option. For a detailed analysis of the bill, CLICK HERE.
“The first leg of a long journey is about to end,” said House Majority Leader Dave Reed, R-Indiana, about the passage of SB1.
“Seven years in the making, folks have bantered about – throughout this Commonwealth , from the school districts and school board members to legislators and governors – about the need to reshape, reinvent and restructure our pension system in this state,” Reed said, arguing that’s what SB1 is intended to do.
“This legislation represents the most significant step forward to meeting our goals of keeping our commitment to our retirees, our current employees and creating that system I talked about for future state and school district employees,” stated Reed, who said that new system “will reduce the cost to taxpayers by $5 billion.”
The actuarial note produced by the Independent Fiscal Office shows a $420 million reduction of the systems’ $76 billion unfunded liability, and a $57 million increase in employer contributions, which are ultimately derived from the state’s taxpayers.
The note also suggests SB1 could save an indeterminate amount of money by way of risk-shifting due to the DC component in the benefit design. Any savings from that would be accompanied by an increase in the unfunded liabilty, that increase simply wouldn’t be as much as it would have been than without SB1’s changes.
Reed acknowledged SB1 “is not my definition of perfect,” but described it as “an accumulation of thoughts and ideas of hundreds, if not thousands, of citizens across this commonwealth.”
“We live in a democracy where give and take is expected, it is demanded, it is needed to formulate policy that makes sense for a very diverse set of citizens that we collectively represent in this commonwealth,” explained Reed.
House Minority Leader Frank Dermody, D-Allegheny, said SB1 isn’t what Democrats, on their own, would have developed, nor is it something Republicans, on their own, would have developed.
“This bill is a compromise reached between people of considerably different points of view, working together in good faith to get something done,” said Dermody, who welcomed what he characterized a rare occurrence in the state Capitol in recent years.
“After four years of fruitless efforts and stark partisan battles on this pension issue, we are finally close to sending a finished product to the governor’s desk,” Dermody added.
Other lawmakers echoed the statements of Reed and Dermody, but not everyone agrees Senate Bill 1 is as historic as some presented it, or actually worth doing.
“Pension debt is the sole reason for doing pension reform, but the unfunded liabilities of SERS and PSERS are the only things left untouched by Senate Bill 1,” said Rep. John McGinnis, R-Blair.
“We’re not making history, we’re repeating it,” added McGinnis, who said SB1 does nothing, according to the actuarial note, to address the unfunded liability, which was $71 billion at the end of 2016, and likely grow to $76 billion in 2017.
“There’s an old saying that a camel is a horse designed by a committee,” said McGinnis. “It would take a committee of camels to design something worse than Senate Bill 1.”
Describing SB1 as “internally inconsistent” and capable of making our current situation worse, McGinnis predicted credit rating agencies will likely reduce Pennsylvania’s credit rating lower than it currently is because SB1 contains nothing to address the concerns those agencies have raised regarding the state’s pension situation.
“The taxpayer has been wronged long enough,” concluded McGinnis, noting a Roman saying in Latin. “We should not add to their burden while insulting their intelligence. We should not repeat history. We should vote no on Senate Bill 1.”
Rep. Bryan Barbin, D-Cambria, noted many of the shortcomings of SB1 identified by McGinnis.
“This bill [SB1] does nothing to deal with the unfunded liability, and until we deal with the unfunded liability, your guess is as good as mine about how much we will owe five years from today or ten years from today,” said Barbin.
He also pointed out the difficulties members have in trying to offer amendments to pension bills, as evidenced by the four House amendments to SB1 ruled out of order on Wednesday – two of which were from McGinnis and one was from Barbin – for not having actuarial notes.
Barbin said the amendments did not have an actuarial note “because we can never get an IFO actuarial note because we never know when the pension bill is going to come out, and once it comes out, it’s too late to get an actuarial note.”
“The people elected all of us to be their servants, to make sure they had an opportunity to right what was wrong – I’m telling you this pension bill is wrong,” said Barbin. “There’s nothing that’s been done to right it, there’s nothing that’s been done to make us expect any different outcome than what we got in 2010 when we passed Act 120 … no one knows and we can’t fix it.”
Indicating he expected the votes for this bill were already set – so he wasn’t trying to convince his colleagues to vote against the bill – Rep. Paul Schemel, R-Franklin, instead urged his colleagues to join him in “the next step” of “this pension journey.”
Schemel said he doesn’t oppose the idea of moving toward the use of defined contribution plans and reducing the reliance on defined benefit plans for state and school employee retirement benefits, but he’s concerned the opportunity cost of doing SB1 will be that lawmakers continue to ignore doing something to address the unfunded liability.
Other speakers against the bill also questioned the potential impact on the retirement savings of future Pennsylvania retirees.
Rep. Stephen McCarter, D-Montgomery, argued the state should not shirk its history – which he said dates back at least 100 years – of improving the conditions of educators and state workers.
“What we have to do is quit doing this and as leaders look at ways that we can make sure every Pennsylvanian when they retire has a defined benefit,” added Rep. Scott Conklin, D-Centre, arguing against SB1’s movement to a DB/DC hybrid benefit plan, which he said would diminish retirement benefits.