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Gov. Wolf plans to sign pension-reform bill

Changes expected to save more than $5 billion

Gov. Tom Wolf has indicated he will sign what is being called a “stacked hybrid” plan to reform the commonwealth’s public-sector pensions, assuming the bill reaches his desk.

First, the House-amended Senate Bill 1071 needs approval from the Senate.

“I want to congratulate both Republicans and Democrats for coming together to find common ground on this issue, and I urge the Senate to move quickly to consider this important legislation,” Wolf said in a statement.

That could take some time, said Jenn Kocher, a spokeswoman for Senate Republicans. “Too early to tell. Members may want to take some time with the bill. This bill has significant differences from the pension reform we sent the House six months ago so we want to digest the changes before making any decisions.”

The bill would maintain benefits for current public employees and retirees, while making changes for future state or school employees hired on Jan. 1, 2018, or July 1, 2018, respectively.

State police troopers would be exempt.

The plan is called a stacked hybrid because it includes elements of both a traditional defined-benefit plan and a defined-contribution plan like a 401(k).

Under the plan, new employees would have a defined-benefit pension for their first $50,000 in annual salary. Employees would contribute 6 percent of salary up to that limit, and the salary limit would rise 3 percent per year for inflation.

A defined-contribution plan, or 401(k)-style benefit, would apply to income over $50,000 or income earned after 25 years. Employee contributions would be 7.5 percent of salary with the state and school districts matching 4 percent.

Lawmakers on both sides of the aisle called the plan a “huge step forward,” similar to the recent liquor-sales reform bill that Wolf signed.

“This is a significant first step in the right direction to start tackling Pennsylvania’s unsustainable public pension system,” said Speaker of the House Mike Turzai (R-Allegheny).

The plan is expected to save more than $5 billion over a 30-year period, according to the fiscal note.

But longtime pension-reform proponents, including the conservative-leaning Commonwealth Foundation, say the bill does not go far enough, given the massive unfunded liabilities in the two state-sponsored pension systems.

Those liabilities have exceeded $60 billion and long-term investment return assumptions have been reduced, which could add to that number and force a hike in employer contribution rates.

The Public School Employees’ Retirement System, or PSERS, just reduced its assumed rate of return to 7.25 percent from 7.5 percent, which could add as much as $2.5 billion to its $37.3 billion in unfunded liabilities. 

Nathan Benefield, vice president of policy for the foundation, called the bill a Band-Aid. “Reconstructive surgery is needed,” he said.

Both the House and Senate are in session nearly every day this month as lawmakers attempt to find compromise on a state spending plan that the governor would support for 2016-17. The current fiscal year ends June 30.

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