By Peter L. DeCoursey
Bureau Chief
Capitolwire
HARRISBURG (June 20) – Rep. Glen Grell, R-Cumberland, says a pension reform proposal authored by Senate Finance Committee Chairman Mike Brubaker, R-Lancaster, “doesn’t really solve the problem. We need to address the problem, which is the unfunded pension liability.”
The Brubaker proposal, which awaits potential Senate floor action next week, once it took effect, would put all future state employees into an investment program with a mandated employee contribution and an employer match, similar to a 401(k) plan.
It would also apply to lawmakers and other state elected officials once they won re-election after it took effect, and to future judges and to current judges after they won their once-a-decade retention elections, after it took effect.
It is similar to part of Gov. Tom Corbett’s pension reform plan, which also had a 401(k) style plan in it. Unlike Corbett’s plan, the Brubaker proposal does not reduce the future benefits of current state employees, which was the source of almost all of the state savings in the Corbett proposal.
Senate President Pro Tem Joe Scarnati, R-Jefferson, said it is not yet clear if the Senate will or can get 26 votes to move the bill to the House next week.
“Our intent is to move the process along on all of the governor’s three priorities: transportation funding, liquor privatization and pensions. So we came up with a product and now we have to identify whether we have 26 votes and where the House is on this product. So that is what we are doing,” he said.
Grell, who has led House efforts to vet pension reforms, said he had no problem with those provisions. He said the House was still reviewing that proposal. Unions representing teachers and state workers say it would worsen the state’s unfunded pension liability, adding billions of dollars to that total. Sen. Pat Browne, R-Lehigh, says those projections are questionable, and this plan will not add to the liability.
Under the current system, employee pensions are based on their highest three-year average salary. They earn 2.5 percent a year of state employee salaries – 3 percent for lawmakers, 4 percent for judges – times the number of years served multiplied by their average high salary.
So a state worker or teacher who worked 30 years, with a high average salary of $60,000 would get an annual pension of $45,000 a year. That is funded by their contributions, the state contribution and investment returns. If, as is the current case, and has been for several years, investments underperform and the state contributes less than it is required to by law, then taxpayers are left to pay the unfunded liability, which is now more than $40 billion and is estimated to grow past $60 billion at its high point.
Grell has been working to find compromises including a bond issue, some modest reductions to current employees future benefit, and making the state contribute more.
“We need to address our current unfunded liability problem,” Grell said. “This might help in 30 years” when the new employees hired under the new system began to retire. “That is fine, but it doesn’t help with the big problem we have now.”
Browne and Brubaker say under their proposed system, the taxpayers expenses would be completely predictable, paid out each year, and there would be no chance of higher payments being due from taxpayers in the future.
Browne also said it would put lawmakers and elected officials and new teachers and state employees into the same kind of pension system that most taxpayers have, so it is a fairness issue.
Scarnati said that in 2010, the Senate moved a bill on pension reform, backing Browne’s amendments to a bill authored by Rep. Dwight Evans, D-Philadelphia, “and at that time, we moved the ball as far as we could, making incremental progress. Now we want to move the ball further, making as much progress as we can now, recognizing we do have to address the long-term issues, the unfunded liability.
“But while we need to deal with that when there is enough agreement on how to do that, right now, a tourniquet to shut off the bleeding,” he said. “So we need to try to move this bill, and make the progress we can make before June 30.”
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