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Union boss: 401(k)s insufficient for state government employees

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Wednesday, May 30, 2012, 7:44 p.m.

HARRISBURG -- A top union leader said on Wednesday that defined contribution plans like 401(k)s are the "modern-day equivalent of the gold watch" for retiring workers, and they should not be forced on public employees in lieu of guaranteed pension plans.

With 401(k)s, employers are saying, "thanks for your service and don't let the door hit you on the way out," said Rick Bloomingdale, president of the Pennsylvania AFL-CIO, an umbrella group that includes unions representing public employees.

Bloomingdale responded to an announcement by Senate Republican leaders on Tuesday that they soon will move forward with legislation to drop guaranteed pension plans to new state workers.

"Over the past few decades, virtually all of the private sector has shifted to defined contribution retirement plans," said Senate Majority Leader Dominic Pileggi, R-Delaware County, a key sponsor. "It's time for Pennsylvania government to do the same."

State government's cost of paying for existing pensions will increase from $1.7 billion in the proposed 2012-13 budget to $4 billion in 2016, the governor's office said.

"A switch to a defined contribution plan will benefit Pennsylvania taxpayers by forcing fiscal discipline," said Senate Appropriations Chairman Jake Corman, R-Centre County.

Richard Dreyfuss, a pension expert with the Commonwealth Foundation, said there is no single figure for the percentage of companies in the private sector with 401(k)s. He referred to a 2010 report from Hewitt Financial Service, which found that about one-third of 33 companies headquartered in Pennsylvania still offered defined benefit plans like pensions while two-thirds offered defined contribution plans such as 401(k)s.

He also cited a national survey in 2011 by Towers Watson, a benefits specialist, which reported about 70 percent of Fortune 100 companies offer 401(k)-type plans.

Bloomingdale said the Republicans' plan doesn't solve the problem.

"You'll still have to pay for existing employees," he said.

Pileggi acknowledged the state will still have the "legacy" costs. But eliminating pensions for new employees is a step that must be taken, he said.

"It cannot be disputed that defined benefit pension plans are out of step with what's provided in the private sector, and that Pennsylvania's current pension system is unsustainable," said Pileggi's spokesman, Erik Arneson.

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