Further reforms of Pennsylvania’s major public employee pension systems faltered last year, first on a veto by Gov. Tom Wolf and, later, a collapsing state budget package.
But the issue that never fell off the list of top Republican legislative priorities came roaring back to life at the state Capitol Tuesday.
That’s where the House State Government Committee gave a first-round win to a so-called “stacked hybrid” plan that would start all next-generation teachers and state workers with a baseline pension based on a traditional formula of years of service multiplied by 2 percent of final average salary.
That defined-benefit plan would convert to a (401)k-style plan for any income earned over $50,000-per-year, and for all income earned after 25 years of service.
For new pension system enrollees in each subsequent year, the 401(k) threshold income would be adjusted up by 1 percent.
Employees would contribute 7 percent of their salary into the retirement system, and the state or school district would provide a 4 percent match on any compensation above the 401(k) income threshold.
None of the proposed changes would apply to current state or school employees.
The mix of traditional and defined contribution plans, according to an actuarial analysis released shortly before Tuesday’s meeting, could shave nearly $10 billion off the state’s taxpayer-funded pension obligations over the next 30 years.
It is, said Rep. Mike Tobash and many of his GOP allies, a reform that’s needed if Pennsylvania’s government is going to be able to have financial stability in the long-term.
“I think it’s in the spirit of what we’re trying to accomplish here in the Commonwealth,” the Pottsville Republican and prime sponsor of the pension bill said Tuesday afternoon.
“And that is to reduce a defined-benefit pension program that we’ve proven incapable of managing, and to provide an adequate benefit built on a modern plan for our future employees.”
Republicans have been in favor of moving the state’s major pension plans toward a defined contribution system for several years now, under the argument that type of plan reduces future risk to taxpayers in the event of investment market upheavals or bad policy decisions.
Democrats in the Legislature have generally argued that the traditional benefit plans provide a better guaranteed benefit to public sector retirees and, since a series of reforms passed in 2010, are built to be much less costly in the long term.
Tobash said Tuesday his stacked hybrid is friendlier to lower-wage employees than past reform plans.
For example, projections released by Pennsylvania State Employees Retirement System actuaries Tuesday show projected pensions for a career worker whose salary taps out at $50,000 would see a state pension upon retirement of $28,873, virtually no change from the current plan.
A career attorney or senior manager who salary grows to $150,000, on the other hand, would see the new plan take his or her pension earnings down from a projected $86,651 under the current system, to $46,821.
Similarly, a separate analysis completed by the Pennsylvania Public School Employees Retirement System showed near 50 percent cuts in projected retirement benefits for career school teachers coming in under the new plan.
Officials with District Council 13 of the American Federation of State, County and Municipal Employees, the largest of the state workers’ unions, declined comment on the new plan Tuesday, saying they needed time to digest its details.
There is one reason for hope for Tobash’s plan.
At one point in the tortured 2015-16 state budget negotiations, Wolf actually advanced a similar, stacked-hybrid pension reform proposal, which suggests that the governor may have a comfort level with the concept.
The big difference?
Under Wolf’s plan, which the Republicans who control both the state House and Senate could not accept, the income threshold for moving an employee from the traditional pension to a (401)k plan was more than $100,000.
So both sides have a large gap to bridge in order to reach a compromise on a stacked-hybrid plan.
The new Tobash plan passed out of the State Government Committee Tuesday on a straight party line 16-10 vote, with all Republicans voting for and all Democrats present voting against.
The bill now moves to the full House floor, where Steve Miskin, spokesman for House Majority Leader Dave Reed, R-Indiana County, said it could get further consideration as early as next week.
Republican lawmakers insisted on further changes to the state’s major pension plans last year, to deliver on promises that they would get better control over one of the state’s biggest cost drivers.
A potential compromise reached last year on the different kind of reform plan faltered in the face of staunch resistance from House Democrats, and many conservative Republicans desire to sink a larger budget package containing income or sales tax increases.