Pa. House approves changes to large pension plans for teachers, state government employees

Pa. House approves pension-overhaul bill

HARRISBURG, Pa. — The Pennsylvania House of Representatives voted overwhelmingly Wednesday to approve significant changes to the state’s two large public-sector pension plans.

The 192-6 vote, taken without floor debate, sent to the Senate a bill that would delay and smooth out a looming jump in costs to taxpayers and reduce some benefits for newly hired state workers, teachers and other school employees.

For those employees, pensions would be 20 percent smaller than they are today, unless employees opt to have more money taken out of their paychecks. The practice that lets retirees withdraw upon retirement their own contributions, plus interest, would be eliminated. The standard retirement age would increase to 65, and it would take 10 years, not five, to vest.

For the Public School Employees’ Retirement System, the lower benefits would apply to anyone hired after June 30, 2011. For the State Employees’ Retirement System, the benefits would involve workers hired after Dec. 31, 2010.

The legislation is designed to address a sharp increase in the costs to taxpayers that is expected to occur in 2012. The bill would limit the amount of a single year’s increase in costs to governments and school districts, graduallly increasing to a cap of 4.5 percent of payroll.

There would also be higher minimum payments. After 2014, the state and school boards would not be allowed to pay into the system less than the so-called “normal cost” to maintain benefits. That change is designed to reduce the wild swings in the level of government support that can occur under the pension plans’ current financial structure.

Senate Majority Leader Dominic Pileggi, R-Delaware, called the legislation “a good first step” in cutting the costs of retirement benefits but noted the new financial structure designed to push back the spike in costs would also cost about $52 billion over 30 years.

The reduced benefits would save an estimated $25 billion, so the net effect would be a $27 billion price tag, most of it borne by taxpayers.

“It’s very good, I think, on the reform side, but the cost of deferral is something we need to take a look at,” Pileggi said.

David R. Fillman, executive director of Council 13 of the American Federation of State, County and Municipal Employees, which represents tens of thousands of workers in the pension system, said his organization was supportive of the changes, given the potential for financial calamity if the systems were not changed.

“Two-tiered pension plans sometimes are problematic,” Fillman said. “The collective union groups that worked on this were recognizing that something had to go through as we move forward. This was the path of least resistance.”

The Pennsylvania State Education Association and the state chapter of the American Federation of Teachers both said they support the legislation as a way to address the funding problem and avoid job losses and other cuts to education programs.

Gov. Ed Rendell said Tuesday he was following the debate but did not indicate if he supported the House-passed approach. Messages seeking comment from Senate Republican leaders were not immediately returned.

SERS, which mostly benefits state government employees, had 110,000 active members and 110,000 annuitants and beneficiaries at the end of December. PSERS, which consists mostly of teachers and public school employees, had 280,000 active members and 178,000 retirees as of a year ago.