PA Senate President Backs Plan to Stop ‘Bleeding’ of Pensions

PA Senate President Backs Plan to Stop ‘Bleeding’ of Pensions
January 30, 2013

Eric Boehm

Eric Boehm writes for the Pennsylvania Independent, where this column first appeared. (read full bio)

Calling it a way to “stop the bleeding” in the state’s public pension systems, Pennsylvania Senate President Joe Scarnati (R-Jefferson) says he would support a proposal to move all new hires into a new pension system similar to the 401(k) plans that are now commonplace in the private sector.

But he questioned whether it was feasible—legislatively and legally—to change unearned future benefits for current employees, which seems to be a part of Gov. Tom Corbett’s as-yet-unseen pension reform package.

Scarnati said moving all new employees into a 401(k)-style plan, a proposal contained in Senate Bill 2, would be a tourniquet on the $40 billion pension debt that continues to grow each year.

“Stopping the bleeding isn’t enough, but it’s the first step we can do,” he said.

Defined Contribution vs. Defined Benefit

Those plans—known as “defined contribution” plans—allow employees to invest their own contributions along with a matching share from their government employer. The risk of the investments falls on the employees, rather than on the taxpayers as in a traditional defined-benefit public-sector retirement plan.

Thanks to investment losses during the recession and a decade of deliberate underfunding by the state, pension payments are set to climb by about $1 billion in the next two state budgets.

Changing to a defined contribution plan for new employees would not change those cost increases, but it would reduce the long-term obligations by slowly closing the deeply indebted defined-benefit systems.

Scarnati’s comments came one day after Charles Zogby, Corbett’s budget secretary, told reporters the administration was likely to target both the benefits of new employees and the unearned future benefits of existing employees.

Likely Court Challenge

Scarnati said he was open to such an arrangement, but he said it would be more difficult to change benefits for current employees. Aside from stiff resistance from public-sector labor unions and Democrats in the legislature, he said a court challenge would be likely.

It’s pretty clear previously earned benefits cannot be changed, but the court record is cloudy on whether future benefits could be.

“We don’t want a lengthy legal battle,” he said.

House Speaker Sam Smith (R-Jefferson) echoes Scarnati’s prediction the reforms would trigger a court battle.

Smith told reporters counting any possible pension savings in next year’s budget would be “risky” until the outcome of court challenges is known.

Dem, Union Opposition

Democrats and public sector unions are already warning against such a change, arguing it would cost more to operate separate pension systems—one for existing employees and a new one for new hires.

Senate Minority Leader Jay Costa (D-Allegheny) said he would not support changes to forthcoming benefits for existing employees.

“I think that we should not be impacting current employees in any capacity; they have done what we asked them to do,” Costa said.

Eric Boehm (eric@paindependent.com) writes for PAIndependent.com, where an earlier version of this article appeared. Used with permission.

Eric Boehm

Eric Boehm writes for the Pennsylvania Independent, where this column first appeared. (read full bio)