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Pa. pension reform bill dies as legislative session nears end
HARRISBURG — The latest bill in the Pennsylvania Legislature to overhaul benefits in the state’s two large public pension systems is stalling as the legislative session winds down.
The most closely watched bill in the closing days of the session, one that would change public-sector pension benefits for newly hired teachers and state workers, failed when Republican leaders could not muster sufficient votes for passage. Neither chamber voted on the final version.
Bills that do not pass this week will die when the legislative session ends Nov. 30, barring an 11th-hour decision by House or Senate leaders to schedule additional voting days. The House plans another voting session Thursday morning.
Republican lawmakers in the Pennsylvania Legislature had launched a new push Tuesday night to overhaul benefits in Pennsylvania’s two large public pension systems as the state grapples with tens of billions of dollars in pension debt.
A conference committee of six lawmakers approved the bill Tuesday in a late-night, party-line vote.
The bill, which would have delivered no short-term savings for the state or school districts, is a variation of legislation that Republicans have tried unsuccessfully to pass for several years. It arrived at the end of the legislative session, as lawmakers worked late to pass a flurry of legislation.
The bill would have reduced traditional pension benefits for newly hired state government and public school employees and add plan options that rely on a 401(k)-style benefit.
Supporters said the changes would help shield the state and school districts from spikes in pension obligations in the future, as markets fluctuate. Over 32 years, the bill would lower projected pension obligation payments of more than $200 billion by about $2.6 billion, according to an analysis by the state Independent Fiscal Office.
Sen. John Blake, D-Lackawanna, described the projected savings as “nominal” and said there would be some higher costs in the short term.
“If we did nothing, we wouldn’t impose $95 million in additional costs on our taxpayers,” said Blake, who voted no in the conference committee vote.
Democratic Gov. Tom Wolf was noncommittal on the bill, although he had pledged to sign earlier versions of pension legislation advanced by the House and Senate.
Jeffrey Sheridan, a spokesman from Wolf's office, previously wrote in an email that Wolf was looking forward to reviewing a final product before taking any action.
Pension debt: Pennsylvania’s pension debt is estimated at more than $60 billion, caused largely by years of state government failing to make timely payments, investment shortfalls and a sweeping increase in pension benefits in 2001 approved by lawmakers.
Pension debt, said Rep. Mike Tobash, R-Schuylkill, “is crushing our public education program.” He was a yes vote in the committee.
Under the bill, future employees of state government and public schools would have been offered the option of three plans. One would be a full 401(k)-style benefit while the other two would blend a traditional pension benefit and a 401(k)-style benefit.
The proposal also would have boosted the age for full retirement benefits from 65 to 67.
David Draine, a senior researcher at the Pew Charitable Trusts, said the bill also would have improved the financial position of the two large pension funds by $5.6 billion, turning a $2.5 billion pension debt into a $3.1 billion surplus after 32 years. That is partly because of a requirement that savings from the proposed changes be used to pay down the pension debt, Draine said.
The bill would have relieved the state and school districts of 60 percent of the risk from investment shortfalls, Draine said. A career worker could earn 90 percent of take-home pay annually under the bill, including Social Security, compared to 100 percent now, Draine said.
State police troopers and state corrections officers would not be affected.
Little savings: Miriam Fox, executive director of the Democratic House Appropriations Committee, said the plan, which would have affected new employees hired beginning in 2018, would likely be the most complicated pension reform in the country.
The proposed changes wouldn't significantly decrease the debt, even long-term, and it would cost school districts millions of dollars to implement in the short-term, Fox said.
State Rep. Stan Saylor, R-Windsor Township, said before seeing the updated bill that he hoped a pension reform bill would "stop the bleeding," though he'd also like to see the current debt addressed.
Fox agreed that state legislators need to find a find a funding stream, but she said this proposed plan "does nothing to stop the bleeding" until about 2040.
"(This plan) would bring minimal savings in order for legislators to be able to take credit for some sort of pension reform and put the issue behind us," she said. "That's not reform."
An analysis by Keystone Research Center reports that the bill would generate minimal savings for the state while significantly cutting retirement benefits for future employees.
The hybrid plan would cut retirement benefits for future state and school employees by at least 15 percent and an average of a third or more, according to the report, while the straight 401(k)-style benefit could cut benefits by 50 percent.
The report states that by the time the savings are projected to materialize, in 12-32 years, state costs are likely to increase because, among other reasons, school and state agencies would likely have to raise wages to attract and retain college-educated employees.
“The Legislature is focused on avoiding financial market risk and the possibility of higher future costs,” Stephen Herzenberg, economist and executive director of the Keystone Research Center, said in the release, “but the three-way hybrid would guarantee higher future costs. It’s a cure that’s worse than the disease.”
— Staff reporter David Weissman contributed to this report.
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