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Pennsylvania state Rep. Tobash targets new employees in plan to trim pension deficit

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Monday, June 16, 2014, 10:51 p.m.
 

HARRISBURG — The Pennsylvania House may delve into a proposal to overhaul state pensions for new employees that would cap some benefits to trim a multibillion-dollar pension deficit and ease the burden on state taxpayers.

The plan is contained in an amendment the House may consider as early as Tuesday, a House GOP spokesman said.

Rep. Mike Tobash, R-Schuyl-kill, proposed a hybrid plan for new employees. Under his plan, the state or school districts would contribute a guaranteed pension contribution until employee earnings hit $50,000 for the year. Above that cutoff, a 401(k)-style savings plan would kick in. The plan would also apply to any employee with more than 25 years of government service, regardless of income.

Republican Gov. Tom Corbett and other supporters of the plan have pushed for pension reform as a way to counteract “skyrocketing property taxes” as school districts try to fund the teachers' retirement system.

They say the roughly $50 billion deficit in the state retirement systems — a shortfall that has prompted Moody's and Fitch, two major credit rating agencies, to lower their ratings for Pennsylvania within the past year — points to the lack of sustainability of public pension plans for teachers and state workers.

An actuarial report on Tobash's plan commissioned by the Public Employee Retirement Commission, of which Tobash is a member, estimated the plan would save between $11 billion and $15 billion during the next 30 years.

But Rick Dreyfuss, a pension expert and fellow at the Commonwealth Foundation and Manhattan Institute, said Tobash's plan won't address the deficit in pension funding.

“I think this debate is really misplaced. Nobody is talking about funding reforms,” Dreyfuss said. “We're being downgraded because we don't have the ability to fund these plans, not because we have a hybrid plan or don't have a hybrid plan.”

“The savings they claim are based solely on cutting benefits for younger workers who would enter the system later on,” said Bill Patton, a spokesman for House Democrats.

According to a letter to the Senate Finance Committee from the Pew Charitable Trusts and Laura and John Arnold Foundation, there was no funding deficit for Pennsylvania's state pension systems in 2003. From then until 2012, the state paid more than $24 billion less than the amount actuaries recommended. Combined with shortfalls in investment returns and other, smaller losses, Pennsylvania's pension systems were more than $47 billion short 10 years later.

“It's sort of like an individual who fails to make payments on a credit card,” said Wythe Keever, a spokesman for the Pennsylvania State Education Association. “The bill always comes due.”

Jay Pagni, a spokesman for Corbett's office, said the long-term savings from Tobash's plan would offset some of this deficit.

“It fundamentally shifts the costs away from the taxpayers,” Pagni said.

Tobash said his plan is designed to cut back on costs to taxpayers while providing future employees with sustainable pension plans, not to solve the pension deficit overnight.

“There's no magic wand that gets rid of $50 billion in debt,” he said.

While the actuarial report on the plan projected savings, it said it would be at the cost of future employees, who would bear more of the risks on their investments than employees do under the existing plan.

Steven Herzenberg, executive director of the Keystone Research Center, said this could mean future workers migrate into the private sector.

“You're going to see them leaving public service more than they tend to do now,” Herzenberg said. “There is no reward for longer service.”

Corbett has maintained that the state cannot keep giving new employees the defined benefits plan.

“We can no longer have the taxpayer foot the bill when investments don't live up to expectations,” Corbett said in a statement in support of Tobash's proposal.

Gideon Bradshaw is an intern with the Pennsylvania Legislative Correspondents Association. He can be reached at bradshawgideon@gmail.com.

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