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Senate president endorses new pension plan for new employees

By   /   January 29, 2013  /   No Comments

By Eric Boehm | PA Independent

HARRISBURG — Calling it a way to “stop the bleeding” in the state’s public pension systems, Senate President Joe Scarnati, 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.

SCARNATI: Open to pension reform, but the Senate president questions whether some changes would be successful.

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, R-Jefferson, on Tuesday 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.

Those plans — technically 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 state and taxpayers, as is the case 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 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.

Scarnati said he was open to such an arrangement, but acknowledged 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 that 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.

Speaker of the House Sam Smith, R-Jefferson, shares Scarnati’s perspective when it comes to reforms that may trigger a court battle over public pensions.

He told reporters on Tuesday that counting any possible pension savings in next year’s budget would be “risky” until the outcome of court challenges are known.

“No matter what you do with pensions, especially as it gets into current employees, you know it’s gonna be tied up in courts. The union’s virtually have a responsibility on behalf on their members to at least challenge it.”

Already, Democrats and public sector unions are warning against the consequences of such a change, arguing that 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, on Tuesday said he would not support changes to 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.

The state should make the increased pension payments in this year’s budget, Costa said.

Scarnati said he did not expect Democrats to put up any votes for making changes to benefits for current employees, but reaffirmed the state Senate’s longstanding view toward bipartisanship on major legislative initiatives.

Republicans control 27 of the 50 seats in the state Senate.

Combining the pension with the budget would make the whole thing “much more difficult,” Scarnati  said.

Contact Boehm at [email protected] and follow @PAIndependent on Twitter for more.

Melissa Daniels contributed to this report.