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June 12, 2012 | By | Posted in Legislature

PA: GOP pension plan would give incentive for current workers to leave state system

All new employees would be forced into 401(k)-style system
 
By Eric Boehm | PA Independent
 
HARRISBURG — A group of Republican lawmakers want to move all future state employees into a new pension system as a way to stop the increasing unfunded liability that is becoming a lead weight around Pennsylvania's budgetary neck.

 
The proposal is contained in House Bills 2452 and 2453, which state Rep. Warren Kampf, R-Chester, introduced Tuesday in the state House, will not reduce the unfunded liability in the state's two major pension systems, but promises long-term savings by moving employees out of the unsustainable pension systems.
 
Taken together, the State Employees Retirement System and Public School Employees Retirement System are facing nearly $40 billion in unfunded liabilities, and contributions to the systems by the state and school districts will nearly triple in the next four years — from $1.6 billion to $4 billion.
 
According to the bill, all new employees would be entered into a defined contribution plan, similar to 401(k) plans used in the private sector where each employee can make their own decisions about investing and saving for retirement.
 
 
In place of the current system that determines pension benefits based on a formula of years worked and final highest salary, all employees would receive a 4 percent employer contribution to a retirement account and would have to make at least a 4 percent contribution on their own.
 
Existing employees would not be required to give up the defined benefit system, but if they voluntarily moved to the new plan, they would receive a 7 percent employer contribution as an incentive.
 
However, stopping new employees from enrolling in the current pension system would at least prevent that liability from growing larger — as long as the state makes mandatory contributions to the system and investment returns hit their expected 7.5 percent annual rate of return for investments, which some say are too rosy to be realistic.
 
Opponents warned that few employees — except for those who are relatively new to the defined benefit system — would opt for the defined contribution system and those who did and accepted the 7 percent contribution from employers would represent an addition cost.
 
David Fillman, executive director of American Federation of State, County and Municipal Employees Council 13, a union which represents some state government workers, said taking workers out of the current system would reduce the number of people paying toward the unfunded liability, actually making the pension crisis worse.
 
“This sounds even worse than just putting all new employees into a defined contribution plan,” he said.
 
Kampf said the proposal would reduce long-term costs in the system by getting workers out of it, but exact figures have not been calculated. 
 
State Rep. Kate Harper, R-Montgomery, who supports Kampf’s plan, said it would help balance the budget.
 
 
Gov. Tom Corbett said Tuesday he had not reviewed the Kampf proposal but reiterated his recent push for pension reform on a broad scale.
 
We gotta get pension reform done,” Corbett said, arguing that the pension crisis is at the root of all state government, local government and school district budget issues right now.
 
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