HARRISBURG - Gov. Tom Corbett sought to build momentum Tuesday for a key part of his state budget proposal by unveiling legislation to change future retirement benefits for state government and school district employees.
The governor wants to use a projected $175 million in first-year savings from curbing public pension costs to pay for additional basic education spending in fiscal 2013-14. With a new report by the state Independent Fiscal Office showing that anticipated state tax revenue growth is disappearing because of weak consumer spending, Mr. Corbett said it becomes even more important to realize pension savings so money is available for education.
"It just heightens the reason this has to get done," he said.
The legislation mirrors a pension proposal outlined by Mr. Corbett in his budget address earlier this year. It calls for putting new employees under a 401(a) defined contribution plan starting in 2015. These are similar to 401(k) plans in the private sector and would be a departure from the traditional defined benefit plan available to retirees and current employees in the State Employees' Retirement System and Public School Employees' Retirement System.
Future benefits
The legislation would calculate future pension benefits for current employees with a lower multiplier and cap how much of an employee's future wages and overtime can be used to calculate pension earnings.
Pension benefits for retirees and benefits already earned by current employees aren't affected by the legislation.
Sen. Michael Brubaker, R-36, Lititz, chairman of the Senate Finance Committee, and Rep. Chris Ross, R-158, Unionville, the House Commerce Committee chairman, are sponsoring the bills in their respective chambers.
The finance panel will hold a hearing on the legislation soon, said Mr. Brubaker.
The legislation contains an unusual provision for an automatic appeal of its constitutionality to the state Supreme Court. The automatic appeal is designed to settle debate over whether Pennsylvania can legally reduce pension benefits for current employees because the state Constitution and case law defined them as a contract between the state and its employed that can't be impaired.
"It's the right thing to do to have this issue court-tested," said Mr. Brubaker.
Needed now
Pension reform is needed now so that escalating costs don't lead to higher state and school district taxes and take away money needed for other government programs, said Mr. Corbett.
"They (taxpayers) don't deserve to face increased taxes due to pension costs," he said.
But Sen. John Blake, D-22, Archbald, ranking Democrat on the finance panel, said the governor's plan will add to pension debt instead of reducing it.
"Moving new employees to a 401(a) will undermine the investment performance of our existing pension systems...," said Mr. Blake. "Further, 401(a) retirement plans are proven to provide lower financial returns and by, disaggregating investment, expose workers with different levels of financial literacy to the vagaries of the markets while sending millions in fees to the financial service industry - money that should instead be invested and managed by experts to guarantee retirement security for our workers."
Switching to a defined contribution plan for future hires will leave a less secure retirement for new employees, said state Treasurer Rob McCord, a potential Democratic candidate for governor next year.
"So far, the 401(k) plans have failed in that regard," said Mr. McCord.
Contact the writer: rswift@timesshamrock.com