Analysts say move will do little to fix problems.
By Eric Boehm | PA Independent
HARRISBURG — The exceptional pension benefits available to state lawmakers might be facing the ax as part of a Republican plan to overhaul the state system.
A bill introduced by state Rep. Tim Krieger, R-Westmoreland, would move all members of the General Assembly from defined benefit pension plans to 401(k)-style defined contribution plans, including current members. Other state workers who are also members of the State Employee Retirement System, or SERS, pension system would not be affected by the legislation.
“It is no secret that the state’s pension systems are in … distress,” wrote Krieger in a memo to other lawmakers asking for support on the bill. “I believe, as elected officials, that we should lead by example.”
If passed, the changes would take effect following the next election, even for current members. The entire state House is up for re-election in 2012, along with half of the state Senate. The remaining half of the state Senate would flip to the new plan following the election in 2014.
In the new plan, members would be eligible for a matching contribution of up to 4 percent, but the guaranteed benefits of the current system would be gone. At the end of the 2012 term, and 2014 for half the state Senate, lawmakers' accrued pension benefits in the current system would be frozen — they would no longer contribute to them and would not gain additional benefits for additional years of service—and they would receive those benefits when they retired.
Legislators are members of SERS, which is facing an official unfunded liability of more than $10 billion. An unfunded liability is the earned benefits that cannot be covered by the existing assets of the pension system.
Even though state taxpayer contributions to the pension fund are projected to increase from $489 million last year to more than $2 billion annually by 2016, the unfunded liability will continue to increase. It is projected to pass $18 billion by 2015 and will not return to current levels until after 2030.
If investment returns fall below the high rates needed to average 8 percent a year, considerably higher than the expected return in private-sector funds, contributions from state taxpayers or spending cuts will have to make up the difference.
The state’s second public pension system —for public school employees — reports an official $20 billion unfunded liability and is funded at about 75 percent.
The state’s 253 lawmakers account for about one quarter of 1 percent of the 101,000 active members in the SERS system, so removing them from the plan will not dramatically affect the financial status of the pension plan.
Even so, state Rep. Daryl Metcalfe, R-Butler, said the intention is to make the first step toward moving all state workers off the defined benefit plans.
“It’s a good move to put the arguments out there, so we can have the debate as it pertains to the system with us as the example,” said Metcalfe, who is chairman the House State Government Committee. He said his committee is planning hearings on the bill for the fall session, but dates have not been set.
Rick Dreyfuss, a retired actuary and pension analyst for the Commonwealth Foundation, a Harrisburg-based free market think tank, said broader changes are necessary to make the state pension system sustainable.
“I would hope they would look to do something that affects everyone, including the lawmakers,” Dreyfuss said. He was critical of pension reforms made last year, which capped the annual contributions to the system for the next three years, resulting in lower payments than actuarially necessary to keep the SERS system funded.
David Fillman, president of Council 13 of the American Federation of State, County and Municipal Employees, the union representing about 65,000 state workers, said lawmakers putting themselves in a lower benefit system would be “precedent setting,” but if the changes were designed to lay the groundwork for reducing state employees’ benefits, the union would oppose.
“You’re going to have a lot of ticked off state employees,” Fillman said. “And if we keep lowering the compensation and benefits, you’re not going to have the quality and duration of employees that (the state) needs.”
Most state employees, who are members of SERS, receive benefits based on 2.5 percent multiplied by the years of service multiplied by the average of the final three years’ salary.
Lawmakers always have granted themselves top-tier benefits, including some of the best pensions in the state. The current formula calculates lawmakers’ pensions based on 3 percent times their years of service and their three highest annual salaries. It requires only five years of service to become vested in the pension system.
Retired state Sen. Robert Mellow, a Lackawanna County Democrat who served 39 years in the General Assembly, is eligible for a $330,000 annual pension from the state, though his pension harkens back to an earlier formula, which was even more generous prior to being changed in the 1970s.
Mario Civera, a Delaware County Republican who served in the state House for 30 years before retiring in 2010, is eligible for an annual pension of more than $92,000.
In total, the 23 lawmakers who retired or were defeated last year are collecting more than $1.7 million annually in pension benefits, with the median payout topping $52,000 annually. Six of the 23 get more than $100,000 per year.
There are also six members of Pennsylvania’s U.S. congressional delegation — four Republicans and two Democrats — collecting pension payments from their time in Harrisburg. They also will be eligible for a pension from the federal government.
But not all lawmakers accept the pension. Some, like state Sen. Mike Folmer, R-Lebanon, oppose the pension, because it is not written into the state constitution, which allows for legislators to receive only a salary and payment for travel expenses to and from Harrisburg.
Others, like state Rep. Warren Kampf, R-Chester, do not accept the pension, because they disagree with the current system, which guarantees benefits regardless of how market performance might affect the pension funds.
“It ultimately means that the taxpayer is the backstop, even at a time when they might be losing their own 401(k) plans,” Kampf said. He said he would participate in a contribution-based system, if one existed for lawmakers, but he would prefer to see wider changes to the system to include all state employees.
