Corbett backs hybrid proposal for public pensions
HARRISBURG – Gov. Tom Corbett is throwing his support behind legislation to replace Pennsylvania’s largest public pension systems with a less costly hybrid system for future state and school employees, his spokesman said Wednesday.
The Public Employee Retirement Commission, which reviews all legislation affecting public employee pensions, voted Wednesday to accept analyses of the plan by actuaries representing the two retirement funds, Corbett and the commission.
“The governor continues to call upon the Legislature for pension reform,” said his press secretary, Jay Pagni.
Rep. Mike Tobash, R-Schuylkill, who sponsored the proposal in an amendment to another bill, called it “step one” in reducing annual taxpayer contributions that could exceed $600 million in the year that starts July 1 and an unfunded liability of more than $45 billion.
“We are really in dire straits and a crisis situation,” Tobash said.
Corbett made pension reform a priority last year but his plan to reduce pension benefits by $12 billion over 30 years collapsed in the GOP-controlled Legislature. He has worked behind the scenes with the sponsors of the hybrid proposal for months, Pagni said.
Corbett is standing by his earlier proposal to postpone some pension obligation payments to provide immediate budget relief, which is expected to save the state $170 million and school districts $130 million, Pagni said.
The complex plan would apply to nearly all newly hired state and school employees, starting next year. It would combine the traditional defined-benefit plan with a 401(k)-style defined contribution plan. Current employees would not be affected.
Actuaries estimate the changes would save billions over 30 years, while shifting more of the risk from taxpayers to the employees.
Several critics of the hybrid proposal, including the state’s largest teachers’ union, pointed out that it would not translate into savings to help ease the state’s current budget woes.
The commission’s own actuary, Virginia-based Cheiron, warned that the proposal could be perilous for future employees.
“For new employees the loss of retirement security is greater than the value of the cost savings for the commonwealth. They not only take on the investment and longevity risk, but lose the value of risk pooling,” the principal consulting actuaries said in a letter to the panel.
Rep. Glenn Grell has advanced a multi-faceted reform plan that calls for $9 billion in borrowing to significantly reduce the unfunded liability. He said the administration seems more concerned about short-term budget relief than paying down that towering debt.
“They like the flexibility of paying more or less into the budget,” the Cumberland County Republican said. “The kind of discipline that is imposed by a bond interest payment is something that takes away from that flexibility.”