Bipartisan pension bill continues to move forward

Bipartisan pension bill continues to move forward

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Gov. Tom Wolf has thrown his support behind a bipartisan bill headed to the state House that would overhaul retirement benefits for new public-sector hires in Pennsylvania.

On June 5, the full Senate passed the bill, Senate Bill 1, by a 40-9 vote.

As Capital Watch goes to print, the state House of Representatives is positioned to vote on Senate Bill 1, and if approved, will send  it to Gov. Tom Wolf who has indicated his support for the legislation

“I look forward to working with House leaders to get this bill across the finish line,” Wolf said in a June 5 statement. “This pension compromise achieves my foremost goals: continuing to pay down our debt, reducing Wall Street fees, shifting risk away from taxpayers, all while providing workers with a fair retirement benefit.”

The legislation continues to move through the General Assembly even though legislators turned away four amendments on June 7. The four amendments were ruled “out of order” for not having an actuarial note.

Two of the proposals rejected on procedural grounds were offered by Rep. John McGinnis, R-Blair, with each representing standalone bills already introduced by McGinnis, who has been a vocal advocate for getting serious about addressing the state’s pension debt.

One of those bills, House Bill 778, would focus on paying off the current unfunded liabilities of State Employees’ Retirement System (SERS) and Public School Employees’ Retirement System (PSERS) within roughly 20 years (which is 12 to 13 years sooner than under current law) – something an actuarial analysis indicated would save $18.1 billion in employer contributions during a roughly 30-year period.

The other bill, House Bill 779, would provide a standalone defined contribution (DC) plan to all new state, public school and municipal employees.

According to McGinnis, the employee would receive a dollar-for-dollar match by their employer (in this case, state and local taxpayers) up to 5 percent of salary. If the investments into which the DC plan dollars are invested produce only a 6 percent rate of return for an employee of 35 years (current pension system assumptions are 7.25-percent returns for their investments), that employee could expect an annuity worth over 60 percent of their final salary upon retirement. With Social Security benefits added onto the DC benefits, the employee could expect their annual retirement benefits to be close to 100 percent of their final year of salary, explained McGinnis.

McGinnis said the proposal is similar to an idea offered during the General Assembly’s 2009-10 Legislative Session by Sen. Pat Browne, R-Lehigh. An actuarial note for Browne’s legislation, Senate Bill 566, indicated it would reduce employer contributions to SERS and PSERS by a combined $13.6 billion during a 30-year period. With McGinnis’ proposal closing the defined benefit plans for both SERS and PSERS to new employees, the risk shifting often referred to by proponents of SB1 would be significantly greater than what’s currently included in SB1.

A new actuarial note had yet to be completed on the McGinnis amendment, so sans note, the amendment could not be considered.

One of the four amendments ruled out of order, offered by Rep. Bryan Barbin, D-Cambria, appears to propose something that is still considered illegal under Act 120 of 2010: borrowing money “for the benefit of” the state’s two public pension systems, specifically the use of pension obligation bonds.

Act 120 prohibits the use of pension obligation bonds for the two systems, however Barbin’s amendment doesn’t specifically call its proposed borrowing a pension obligation bond: $5 billion would be borrowed under the Capital Facilities Debt Enabling Act, with the $5 billion “applied to the current pension deficit” of SERS and PSERS. The $5 billion in bonds would have been paid off by 20 years of $250 million annual payments, seemingly indicating the state borrowing would be interest free – something that does not seem likely given other recent bonding efforts by the Commonwealth.

The other bypassed amendment, from Rep. Scott Conklin, D-Centre, would have allowed those elected as Governor, Lt. Governor and members of the General Assembly to, within one year of their taking office, decide if they want to enroll in one of the three new options. Under the proposal, if they didn’t make a decision, they lose the ability to become a member of the pension system. Those that lose their eligibility for membership only regain the ability to sign up for one of the systems’ plans if they leave state employment and then return to state employment. Conklin amendment expressly does not apply to those who are already members of the pension system, i.e. previously elected officials who won re-election.