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With transportation done, lawmaker talks pensions

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How many heavy lifts can the General Assembly pull off this holiday season?

With a transportation funding plan carved out before the turkey was in the oven, York County Republican Rep. Seth Grove said he believes the remaining session days before Christmas could yield a solution on statewide pension reform.

"I think everyone would like to see it get done before we break for Christmas," said Grove, who also has a bill to address municipal pension reform. "That's House, Senate, governor. I think everybody would like to come back in December, focus on pensions and get it done."

The Senate was back for two days this week. Senators have three remaining session days on Monday, Tuesday and Wednesday.

The House comes back from break on Monday and has six days left on the calendar. That includes the same three days next week, followed by three more Dec. 16-18.

Is that enough time to agree on a plan to address two public-sector retirement systems with more than $47 billion in unfunded liabilities? Is there even enough bipartisan support?

Democrats have argued the state should let reforms made in 2010 under Act 120 run their course. That reform helped address an anticipated spike in pension costs by "smoothing" the increases over a long period of time. That law also reduced benefits for new hires.

The Public School Employees' Retirement System has already sent out notification that the employer contribution rate for fiscal year 2014-2015 will be 21.4 percent — up from 16.9 percent. This rate reflects the rate caps established by Act 120. Prior to the act, the rate for the coming fiscal year was projected at 33.8 percent, according to PSERS.

The Business Journal spoke with Grove last week about lawmakers' appetite to tackle the issue as we head into 2014, a gubernatorial election year with most of the state offices on the ballot.

Q: Why is pension next on the list?

A: Obviously, statewide pensions have a direct implication on our budget and school district budgets. I think it's important to get pension reform taken care of before we even start going into next year and our budget time. We're looking at a $1.2 billion hole in next year's budget — $600 million in pensions and $500 million in medical assistance. Everything else is the remainder.

When does it have to be addressed before it's deemed a dead issue until 2015-16 session?

In reality, it could get done June 30.

How many proposals are under serious consideration?

I think we're looking at three main plans. There is (Rep.) Warren Kampf's defined-contribution (plan), (Rep.) Glen Grell with (a) cash-balance (plan) and bonding, and then we have (Rep.) Mike Tobash's (plan), which is a hybrid.

Each one has positives and negatives to it. Warren's is a 401(k), a complete DC (defined-contribution plan) with some alterations to current employees. Glen Grell's is a hybrid cash-balance that has the (defined-contribution) component and he's looking for concessions from the unions, as well as the bonding mechanism to interject money into the pension system. Mike Tobash's is a straight-up hybrid. The first $50,000 an employee makes would be a DB (defined-benefit plan). Anything over $50,000 would be a DC.

The big thing is to start moving into a DC plan. I think in the end that's where people want to go.

I would love to see a pension reform plan that flat-funds the pension system, so we won't have a cost increase this year for the state or the school districts. I don't know if that is possible in the confines of pension reform.

From what I've heard, it sounds like whatever we can agree on will be a Senate, House, governor agreement. It's a matter of sitting down and saying, "What do we have votes for? What's a good plan of action and how do we mitigate that $600 million in the state budget and a multimillion-dollar increase at the local level with school districts?"

What is likely to move first — statewide or municipal reforms? Can both run concurrent, and is a package possible?

I know for a fact nobody wants to get into municipal pensions until the statewide stuff is taken care of. For all intents and purposes, whatever we do statewide we'll probably end up doing at the local level. And then the big argument is: Should we do a statewide plan or a local plan?

If you follow property taxes, every statewide property tax plan has always failed, and then obviously local stuff passes. It's going to be an interesting battle to see what locals want to do. A lot of locals don't want to give up control of their pensions and they don't want to get mixed in with other local governments with failing pension plans because they have been underfunding them for years.

I think statewide pensions opens the door and makes it a lot easier to do municipal pensions. I think there is enough pressure to get municipal pensions done just from the positions some local governments are in. I look at York. If their pension concerns are taken care of, they become more fiscally stable than what they are now.

You have struggling third-class cities where, for some of them, pension reform makes them financially viable.

How much input has there been from unions?

I think the big thing is moving away from touching current employees' pensions. I feel it's unfair to dabble in it. Why open the door (to) a court case? I would rather fix the structure. If you want to (make changes for) current employees, do it separately. That way the new structure can stay in place. You don't have to worry about holding it up (over an) injunction.

There are some reforms needed for current employees. I think the most egregious one is pulling money out and then getting that same benefit. If people wouldn't pull their money out, that money stays in the system to be utilized to pay off the unfunded liability. When the money is pulled out, it's a double hit because your payments aren't dropping. It's predicated that your money is still in there.

What happens if nothing is done in this session on pension reform?

When looking at $600 million in pension costs, just from the state, you have two options. Obviously we don't have enough new revenue coming in to afford the pension increase. So what we're going to have to do is either slash and burn the budget, or raise taxes. Or maybe do a combination of the two. I don't think there is a big appetite for raising taxes.

If anybody out there cares about a line item in the budget and wants to see more money go into their line items, we have to address pensions.

Rank for me the next big items on the priority list.

When you've knocked out transportation and pensions, it's two wins, and wins beget wins. It makes it easier to come back and do liquor (privatization). I think we need to address property taxes and then charter reform.

And I think lottery is still out there. Hopefully, there can be an agreement soon on that.

Pension proposals

• House Bill 1581, a cash-balance plan offered by York County Republican Rep. Seth Grove during the summer to address public safety hires at the municipal level. Cumberland County Republican Rep. Glen Grell has a comparable bill — H.B. 1651 — on municipal police pensions.

• Chester County Republican Rep. Warren Kampf has two bills on the table in the House. One is H.B. 1352 and one is H.B. 1353. His bills would move new state hires to a 401(k)-style retirement system.

• Grell proposed two statewide reform bills that have not yet been introduced. The hybrid model would establish a shared risk, or cash-balance, plan for new hires. It would be a new tier on the existing defined-benefit plan.

• Rep. Mike Tobash, R-Schuylkill, is proposing a hybrid where the first $50,000 in annual income earned by a new employee would fall under a defined-benefit plan. Income above that threshold would be calculated under a defined-contribution plan. The proposal hasn’t been introduced.

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