PhillyDeals: Pennsylvania lawmakers get real on pensions

PAUL VATHIS / Associated Press
PAUL VATHIS / Associated Press
Posted: June 20, 2010

The easy-money fantasies of the 1990s investment markets finally dissipated over Harrisburg last week, when the state House voted, 192-6, to undo ex-Gov. Ridge's dot.com-era pension law.

The new bill gained weight before it passed. The first version, from State Rep. Dwight Evans (D., Phila.), would have done what Pennsylvania lawmakers have already done too many times: delay multibillion-dollar payments required by previous state laws, and leave them for future taxpayers.

What choice did Harrisburg have? The state is broke. School districts, which foot part of the bill, recoiled at the higher property taxes that would be needed to keep the underfunded public-employee and schoolteacher pension plans as solvent as the law demands.

But some lawmakers were resolved not to waste this year's pension crisis. And union leaders agreed to meet them part way.

"I told [Evans], 'All the Republicans will be voting yes. However, we'd like to offer some amendments,' " State Rep. Bill Adolph (R., Delaware) said.

Under Evans' bill, long-term minimum pension subsidies from the state and school districts were increased, in exchange for delaying the balloon payments that had threatened to boost subsidies for the pension systems from $1.4 billion this year to $5.9 billion two years from now. With the new law, they still rise, to $2.5 billion, and more in future years.

Adolph and Rep. Glen Grell (R., Cumberland) said they wanted to go further: Reduce pensions for new workers hired, starting next year. Push most workers' retirement age to 65, from 60. End big up-front payouts as a retirement option. Make workers stay on the job 10 years, instead of five, before qualifying for pensions. And give them 2 percent of their top pay for each year they work, down from 2.5 percent.

Instead of throwing them out of his office in deference to the well-organized public-worker lobby, Evans and his fellow Democrats "ended up sitting down and talking," said Barbara Fellencer, spokeswoman for the House Appropriations Committee, which Evans heads.

Union leaders also caucused. "We started saying, 'We've got to do something about this, especially in light of all the talk about converting the pension plan into a 401(k)-style defined-contribution plan," under which workers, not the state, would bear the risk of investment-market losses, said David Fillman, elected leader of AFSCME Council 13, which represents 45,000 state employees.

The resulting bill "was a reversal" of the Ridge law that had increased pensions and eligibility, Fillman said.

The unions won some points. "We felt it was a matter of equity that workers had the option to pay more" if they wanted to keep old-style higher pensions, James Testerman, president of the 191,000-plus-member Pennsylvania State Education Association, told me. House leaders agreed to let new hires choose pensions that still accrue at the old, faster rate - if they agreed to put 9.3 percent of each paycheck into the pension plan, up from the standard 6.25 percent.

On June 9, a week before the Harrisburg vote, Testerman called a meeting of his 53-member board. He said more than 90 percent approved the bill. "People ought to agree to pay a little bit more," he said.

Not everyone is sharing the cost. While state legislators are covered, judges won't be affected by the law, state courts spokesman Tom Darr said. They will still be pension-eligible after just five years, and they won't have to pay more for their benefits.

Despite its lopsided majority in the House, the bill is not a sure thing in the Senate.

"The original bill that would postpone the day of reckoning had a cost of $52 billion" over 30 years, while the new pension rules "reduce that cost by $25 billion," Senate Majority Leader Dominic Pileggi (R., Delaware/Chester) said. "But there still remains the fact the package, taken together, increases the cost to taxpayers by $27 billion.

"We're looking at ways to reduce that cost and incur additional savings," Pileggi said. "There's still members in the Senate who support a movement, in whole or in part, to a defined-contribution plan."

Gov. Rendell "is generally supportive," but the bill "will be subject to revision," added his spokesman, Gary Tuma. It's still not decided how much the state will put into the pension funds in its next budget.

"Is it a cure? Absolutely not," said James McAneny, head of the Pennsylvania Public Employees Retirement Commission. "It's a way to soften the blow" of closing the multibillion-dollar gap between what Pennsylvania owes and what it has set aside to pay.

McAneny blames not just higher pensions and lower payments after the 2001 law, but a 2003 law that further lowered public pension subsidies in hopes the stock market would recover.

"We pretended we didn't need" more money for the plans "because the systems were going to earn their way out of it," McAneny said. "We almost did."

But the stock market collapse of 2008 dropped both plans' assets back to 2001 levels, while their obligations to future retirees kept growing. State revenue also fell, closing off higher state subsidies as a way out of the mess.

The House bill "is like a refinancing," McAneny says. The state still faces much higher payments, but the worst doesn't kick in for years.

McAneny says he believes in "the capitalistic system" and an eventual market recovery, and in guaranteed pensions, which he said prevent state workers from ending up as state welfare recipients when they're old.

He's less supportive of the dozens of agency administrators and assistant principals who retire each year at more than $100,000 a year. (Union leader Testerman defends them: "It's a good income. But it's not as high as they would find in the private sector.")

McAneny objects most to the practice of alternately ignoring pension finance and imposing frenzied, short-term solutions. Pennsylvania needs to "spend some time deciding: What does the employer, in this case the government, owe its employees? What is a fair level of compensation, in the paycheck, and in the pension?"


Contact Joseph N. DiStefano at 215-854-5194 or JoeD@phillynews.com.

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