A York County legislator plans to propose pension reform aimed at preserving the retirement plans for police, firefighters, and other municipal workers while keeping cities, boroughs and townships financially solvent as they struggle to keep pace with escalating costs.
Rep. Seth Grove, R-Dover, said he'll introduce legislation this week, creating a new system under which new hires would switch to a hybrid plan that allows existing pension liabilities to be paid down with interest from the new investments.
Current employees would retain existing benefit levels, but those benefits would be frozen at their current rates and not subject to increase during future union bargaining agreements, Grove said.
Officials lauded the plan during an unveiling at a press conference Monday at York City Hall, with York Mayor Kim Bracey, Lancaster Mayor Rick Gray and other municipal leaders from around the region in attendance.
The problem: Municipal pensions are separate from the state pensions, as municipal pensions cover only local government employees.
York City's firefighter and police pension funds are "moderately distressed," and a third of Pennsylvania's local-government retirement plans are financially distressed, according to a report issued last September by then Auditor General Jack Wagner.
The city's police pension is funded at only 55 percent of the plan's total liabilities, while the firefighter pension is funded at 60 percent.
Pension expenses squeeze the city's budget every year, with officials weighing tax increases or staff reductions to cover their debts.
Bracey said Monday that reform is needed, or city officials might "find ourselves in more of a crisis than we are right now."
Support: Supporting the proposal Monday were representatives from the York County Economic Alliance and the Coalition for Sustainable Communities, a coalition of municipal and business leaders formed to help municipalities meet their financial challenges.
Alliance president and CEO Darrell Auterson said the business community is concerned about municipal pensions because financially struggling cities, boroughs, and townships find it difficult to attract and retain good businesses.
Spiraling costs would be unacceptable for a business to maintain, and they should be unacceptable in the public sector as well, he said.
Perry Heath, Carlisle's borough council president, said pension reform is a public safety issue because increased pension costs cause cities, as is the case in York, to choose between raising taxes or reducing police, fire, and other services for residents.
How it would work: Under Grove's plan:
**Current employees would retain existing benefits, which would be frozen and not subject to change by collective bargaining.
**Pension benefits would be removed from the collective bargaining table.
**New hires would switch to a cash balance hybrid plan, which includes defined benefit and defined contribution plans under which some profits could be used to pay down existing pension liabilities.
Municipal workers are currently working under a defined benefit plan, in which employer contributions are specified based on factors such as the employee's earnings history and years of service.
The new hybrid plan would work more like a defined contribution plan, in which the amount of the employer's contribution is specified and accounts are set up for each employee. The benefits are based on the payments made to the account by the employer and employee contributions.
The pensions would collect interest that could be used to pay down the debt on existing pensions, Grove said.
**And pensions would be calculated on base pay only, eliminating "spiking" caused by pay calculations that include overtime hours and unused sick time or vacation days.
Grove said he's optimistic the bill will gain traction, adding that though pension reform efforts have faced difficulty in the House and Senate, the problem is statewide and needs to be addressed.
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