Pension Reform A Must, Lawmakers Say

The Republican-controlled House plans to take up a pension reform bill in early to mid-May, caucus sources say. The vote will set the stage for working with a Senate Republican majority that is equally committed to reform, and a potential conflict with Governor Tom Wolf who has downplayed the gravity of the public pension crisis.

One of the architects of the House plan, Mike Tobash (R-125), said that he is again working with Chester County Republican Warren Kamp to finalize language. Its overall thrust will be to move future hires to a 401 (k) style defined contribution plan, predominant in the private sector, rather than the defined benefit plan currently in use.

“It’s clear the state government should not be overseeing a pension plan,” Tobash said, referring to years of state underfunding of both the school district employee plan, PSERS, and the state employee plan, SERS.

Speaking at the PMA on Monday, Warren Kampf said, “There is no way to overstate the significance of the problem. Cuts in services and tax increases will be inevitable if we don’t deal with this. Unlike the federal government, we can’t just print money.”

The combined unfunded liability of the two plans has reached $53 billion and grows by $10 million a day, according to the Pennsylvania Employee Retirement Commission. The debt is putting pressure to increase local and state taxes, and its diverting funding from other vital government services. Pennsylvania’s Independent Fiscal Office estimates that the General Fund should contribute $2.4 billion next fiscal year as the state’s share of the cost for the two pension systems, most of it to cover unfunded liability. It’s an amount larger than the budget deficit predicted for next year.

“We don’t need tax increases as proposed by Governor Wolf to close the deficit,” said PMA Executive Director David N. Taylor. “We need long-term structural reforms to our pension systems.”

Meanwhile, Senate Republicans are expected to introduce a reform proposal in coming weeks, according to a spokesperson for the caucus. Majority Leader Jake Corman (R-Centre) has repeatedly said that pension reform is the caucus’s number one issue, and recently at a Pennsylvania Press Club luncheon said that the Senate plan might include reducing the multiplier used to calculate a retired employee’s final pension amount. A 2001 increase in the multiplier is one of the contributing factors to the unfunded liability. He also said at the same luncheon that pension reform must be done before a budget can be passed. When asked by a reporter about Governor Wolf saying that he plans to tackle a pension plan in the fall Corman rightfully did not stand down and responded, “then he will get a budget in the fall.”

The final plan worked out between the House and Senate is almost sure to be part of the overall budget negotiations but it’s unclear how Governor Wolf might respond. During the gubernatorial campaign, Wolf said he would prefer to allow a 2010 pension law (Act 120) work, a law that did contain some reforms but was designed in large part to reduce the state’s contribution amount to the two pension systems. And in his budget address, the governor proposed borrowing $3 billion to place in PSERS, the more troubled of the two systems. Kampf said the borrowing plan would just replace one debt for another.

A Tobash/Kamp plan came a few votes short of passing the House last fall. However, this year both the House and Senate have stronger Republican majorities this session: the House stands at 120-83 and the Senate at 30-20.

“The fact that government has proven that it can’t run a pension system is in itself a great argument for change,” Kampf said.

Legislative language and details will be forthcoming, so there is more to come on this important topic.