November 19, 2010

PSEA President applauds legislators for passage of pension reform bill

Thanks to a bipartisan problem-solving approach by state lawmakers, a serious fiscal problem confronting Pennsylvania’s public employee pension systems won’t have to wait for action until next year.

PSEA President Jim Testerman applauded legislators from both parties in the state House of Representatives and state Senate for their responsible action, sending pension reform legislation to Gov. Ed Rendell.

Testerman said Pennsylvania’s General Assembly did the right thing to address problems of the Commonwealth’s public employee pension funds.

“Compromising and agreeing to changes to our pension system has been tough, but PSEA realizes that this legislation resolves the pension crisis in a responsible manner and over time will save the taxpayers billions of dollars,” Testerman said. “It also keeps the promise of a secure retirement for current and future workers.”

The state House of Representatives oh November 15 passed House Bill 2497, the pension reform measure, by a 165 to 31 vote. The state Senate had amended the bill last month, sending it back to the House. The bill now goes to Gov. Rendell, who has indicated he will sign it into law.

“We are grateful to members of the House and Senate who worked together in a bipartisan spirit to address the problems now, rather than wait for another year when costs to taxpayers would rise,” Testerman said. “The General Assembly and Governor-Elect Tom Corbett will have their hands full in 2011 dealing with the state’s ongoing fiscal problems. This is one additional problem that won’t require legislative attention next year.”

Testerman described HB 2497 as landmark legislation. For new school employees, state employees, and legislators, the bill alters pension benefit enhancements granted in 2001. Moreover, it significantly raises the retirement age, reduces the maximum pension benefit, and eliminates the option to withdraw employee contributions. Senate amendments added a requirement that employees share in the risk if the pension fund suffers losses by paying a higher contribution rate.

The legislation will reduce the employer normal cost of pension benefits for new school employees by an estimated 60 percent. Other approaches were reviewed by the Public Employee Retirement Commission (including 401(k)-type plans), but the benefit cost savings over the next 30 years under HB 2497 were the greatest.

HB 2497 also addresses the looming employer pension spike, when employer pension contributions are projected to go from $762 million this year to $4.12 billion in 2012. The spike was not the result of normal pension funding or the normal cost of benefits, but from three other factors.

The first factor was investment losses related to two recessions in one decade, and the second was the General Assembly’s deferral of employer payments during the last ten years. These two alone account for nearly four-fifths of the contribution spike. The third factor contributing to the spike is the cost of retroactive benefit increases granted as part of Act 9 in 2001. HB 2497 presents a more affordable payment plan that also protects taxpayers.

The bill requires new workers to pay an increased rate (equivalent to 10.3 percent of pay) to receive the current defined benefit pension, or receive a reduced benefit by contributing 7.5 percent of their pay to PSERS. The measure also would double the period that new employees must work – to 10 years, from the current five – before they would be eligible to receive a pension. New school employees would also have to work longer in order to retire without penalty.

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