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Bill to overhaul Pennsylvania pension benefits on fast track

Staff and wire report

HARRISBURG — Legislation supported by Democratic Gov. Tom Wolf to overhaul benefits for future employees in Pennsylvania’s two big debt-saddled pension systems is on a fast track, passing the Senate in a bipartisan vote Monday on its way to the House.

In this file photo, Gov. Tom Wolf talks with the media after a tour at York City School District's Ferguson K-8 on Wednesday, Sept. 14, 2016. He was at the school as part of his Schools That Teach tour. Bill Kalina photo

The Republican-controlled Senate’s 40-9 vote was expected to be followed by swift House action this week to send the just-unveiled bill to Wolf’s desk.

The bill, produced from months of closed-door negotiations, is the result of Senate Republicans trying for more than four years to end or reduce the traditional pension benefit for future state government and public school employees in favor of a 401(k)-style benefit. If it becomes law, it would be the second pension benefits reduction in eight years.

The bill would create a less expensive and less generous pension benefits structure in the future while also shifting some risk of investment losses off taxpayers and onto the public employees of tomorrow.

But actuaries note that creating the new benefits plans still leaves Pennsylvania’s massive pension debt intact and will not stop the rising pension obligation payments that are squeezing the budgets of school districts.

Wagner opposed: While the GOP-led effort was supported by Wolf, it was opposed by Sen. Scott Wagner, potentially Wolf's opponent for the 2018 gubernatorial election.

State Sen. Scott Wagner. Dawn J. Sagert photo

The Spring Garden Township Republican — the lone Republican to vote against the measure — said the bill "doesn't go deep enough," because the system should only offer a 401(k)-style benefit plan.

"We're dancing around (the issue)," Wagner said.

Wagner supported previous pension reform bills, including the one Wolf vetoed in 2015.

Sen. Mike Folmer, R-York, Dauphin and Lebanon counties, said he voted for the bill because it would "stop the bleeding" while they work to address the large unfunded liability.

"My measuring stick for bills is (whether) Pennsylvania (is) better with or without it," Folmer said.

Folmer understood Wagner's stance, but he credited the authors of the bill for finding a middle ground that gained enough bipartisan support to hopefully pass into law.

'Historic reform': In his floor comments, Senate President Pro Tempore Joe Scarnati, R-Jefferson, called the legislation “historic reform” that “will help ensure the stability of the commonwealth for decades to come.”

Senate Majority Leader Jake Corman, R-Centre, said if lawmakers had adopted the same changes in 2001 — the year they approved a huge benefits increase — the state “wouldn’t be in this situation that we’re in today and dealing with skyrocketing increases of our contribution.”

Wolf’s office said he supports the bill and its goals of continuing to pay down the pension debt on the current schedule, reduce pension fund investment fees and shift investment risk away from taxpayers.

The bill: Under the bill, most new employees hired after 2019 would see a smaller traditional pension benefit combined with a new a 401(k)-style benefit. They also could choose a plan based entirely on a 401(k)-style benefit. About one-third of future state government employees, including Pennsylvania state troopers and state corrections officers, are exempt from the plan changes.

The roughly $60 billion projected debt in Pennsylvania’s two big public pension systems is attributed to the benefits of current and retired employees and will take more than two decades to pay down, according to estimates by the pension systems.

That debt stems from years of lawmakers and governors deferring payments into the system and approving pension benefits increases, plus disappointing investment performances in some years.

The bill does not reduce the benefits for current public employees, lawmakers or retirees, and it does not pledge a big influx of money to pay down the pension debt.

In 2015, Wolf had proposed borrowing $3 billion in bonds to refinance part of the pension debt and save a projected $8 billion, but legislators opposed it. Meanwhile, Senate Republicans had sought billions of dollars in concessions from current employees, but it hit opposition in the House.

Wolf vetoed Republican-penned legislation in 2015 that would have ended the traditional pension benefit for new hires in favor of a 401(k)-style benefit.

About one-third of U.S. states already administer a mandatory or optional 401(k)-style retirement benefit for employees, according to the National Association of State Retirement Administrators.

— The Associated Press and staff writer David Weissman contributed to this report.