The Herald, Sharon, Pa.

Opinion

June 17, 2014

Corbett, lawmakers strain to solve puzzle on pensions

- — Conservative lawmakers are balking at a new “Franken-pension” supported by Gov. Tom Corbett that would keep defined benefits for the first $50,000 in salary of new state employees.

And, oddly enough, that means liberals and some conservatives for once agree: Neither likes this compromise.

Conservative concerns carry more weight, of course, because Democrats in the minority have expressed no interest in helping Corbett with his agenda.

On Thursday, House Minority Leader Frank Dermody, D-Allegheny County, issued a statement calling for hearings on what he described as a “massive and complicated” attempt at pension compromise.

True enough: The pension amendment under discussion is 210 pages long. The bill it’s amending runs 170 pages.

“When Republicans in the House take hours behind closed doors to discuss an amendment and still can’t get satisfactory answers, it means that the proposal needs to be reviewed in much greater detail,” said Dermody.

Pension reform has emerged as a turning point in negotiations leading to the June 30 deadline for the state’s $29 billion budget. Corbett last week said he will not consider any type of tax increase to close a $1.3 billion budget gap if the Legislature does not pass pension reform.

Pennsylvania is by no means alone in its pension problems. The National Conference of State Legislatures tallied 10 states that enacted substantial pension reform in 2012 alone.

They included Kansas, Louisiana and Virginia. Those states replaced defined-benefit plans, in which retirees receive a specified payment, with cash balance plans, in which the state promises to fund pension accounts of active employees to certain levels, or some hybrid plan.

The amendment up for discussion, authored by state Rep. Mike Tobash, R-Schuylkill County, tries to thread the needle by including elements of defined-benefit and defined-contribution plans such as those most often used in private sector 401(k) plans.

Employees will get a defined benefit based on average pay capped at $50,000 a year. Beyond that, an employee would be able to invest into a defined-contribution plan.

The charm of this approach is that it saves money and eliminates the abuses associated with highly paid state workers ending their careers to enjoy decades of taxpayer-funded retirement.

For instance, in Northumberland County, former Central Susquehanna Intermediate Unit chief Robert Witten has collected $187,000 a year since retiring in 2011, according to records obtained by the Pottstown Mercury.

Tobash estimates his measure would save the state $7.4 billion – and school districts $15 billion – over the next 30 years.

House Republicans had hinted that the plan would be put to a vote last week. But after two days of private discussions, the matter was pushed into this week.

A caucus spokesman said there were unanswered questions. Rank-and-file lawmakers said there wasn’t enough support to pass the plan.

“There are some people who think it doesn’t go far enough, there are some who think it goes too far,” said Rep. Fred Keller, R-Union County.

Count Keller among those who think the plan falls short. He’s still pushing to completely eliminate the defined-benefit elements of the pension.

So is state Rep. Brad Roae, R-Crawford County.

“I support putting all new employees into a defined contribution pension plan,” Roae said. “Almost everyone who starts a new private sector job today is offered a defined contribution plan such as a 401(k) rather than a defined benefit pension. Almost every company is doing it. That is proof that it saves money. State taxpayers would realize the same savings.”

Immediate action is required to keep Republicans out of a pickle. The governor wants to put off a portion of a scheduled payment toward pensions, but he doesn’t want to be accused of completely kicking the can down the road.

Critics argue that even this approach has its flaws. Any savings under the Tobash plan could be eliminated by Corbett’s failure now to make a full scheduled payment.

State Rep. Dick Stevenson, Grove City, R-8th District, said there’s at least broad agreement on the fact that the state needs to tackle the issue.

“It’s critical that we do something,” he said.

Pennsylvania’s unfunded public pension debt is $50 billion.

In the past year the state paid $3.4 billion in employer contributions to worker pensions. That yearly payment will almost double by 2018-19.

Keller notes that lawmakers not feeling pressured by the governor’s cajoling ought to worry about the threat of credit downgrades.

But it’s far from clear that anyone has found a solution that will get enough support to pass.

“We’ll see soon,” Stevenson said.

John Finnerty works in the Harrisburg Bureau for Community Newspaper Holdings Inc. He can be reached by email at jfinnerty@cnhi.com or on Twitter@cnhipa

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