A measure just introduced in the state Senate hits nearly every point in the platform championed by local pension reform advocates.
Senate Bill 755 would permit municipalities to use defined contribution pension plans for all future municipal hires, while maintaining what’s already been promised to those already employed or already retired.
Right now, they can do that only for non-uniform workers. This measure would allow it for public saftety employees, too.The thinking is that governments can better predict defined contribution plan costs because they commit only to contribute a certain amount up front. With defined benefit types, they pledge payouts of a certain amount in the future.
(Nearly three-quarters of the Commonwealth’s 3,200-plus pension plans are defined contribution, according to the state Public Employees Retirement Commission). Here’s what else the new bill proposes, in detail:
- Pension details often are spelled out in union contracts, and so can be decided through the binding arbitration process. That’s when a neutral third party makes a decision on contract negotiations in which the union and municipality cannot agree. Intended to be fair, the procedure has been criticized for its lack of transparency, cost burden on taxpayers and tendency to produce agreements that aren’t based — at least, not in a clearly documented fashion — on actuarial data showing the municipality can afford the terms.
- No salary spiking. That refers to the practice of assigning overtime based on seniority so those closest to retirement can increase their end-career salaries used to calculate pensions.
- Workers can’t transfer their pensions among jurisdictions if they go to work for a different municipality currently. This bill would allow that — but it would only work if both municipalities make the change.
- Workers could be vested faster: 25 percent after four years, 50 percent at six years, 75 percent at eight years and fully at 10 years. Currently, it’s full at 12 years or more.
- Employees must contribute a higher percentage of their earnings if they aren’t contributing to social security. That’s intended to ensure retirement security. Some experts also say public money pays to care for those who cannot support themselves after they retire.
Why this is an issue?
Bill sponsor state Sen. John Eichelberger, R-Blair, says he intends the bill to address the “growing pension crisis at the municipal level.”
Combined, the Commonwealth’s municipal pension funds are about $7.7 billion below from where they need to be to cover pensions of retirees and vested workers, according to estimates from the state Auditor General’s office.
Some of the office’s recommendations for preventing the problem from getting worse.
Already, it is driving municipalities toward bankruptcy (Scranton), and has forced some at an earlier stage of distress to sell assets (Allentown’s wastewater treatment infrastructure, Pittsburgh dedicating its parking system revenue) or incur interest expenses from borrowing (York, Pittsburgh, Erie and others).
Why it matters?
Residents, businesses and visitors might face service fee hikes (parking and water and sewer service) after asset sales, or higher taxes to cover the government’s required minimum payments to their pension funds or the repayments on pension bonds.
And when those options are exhausted, services might get cut so officials can use the money previously used to fund them for pension expenses. Depending on the town, that could mean fewer cops, more potholes, darker streets, etc.
“Rapidly increasing municipal pension distress is a drag…on the state economy. No one wants to live, work, or grow a business in an over-taxed, under-served, and fiscally unstable community,” said Joe Hurd, President and CEO of the Blair County Chamber of Commerce, in a statement issued by the Coalition for Sustainable Communities Wednesday.
Eichelberger introduced the bill this week.
It’s now with the state Senate Finance Committee, whcih Eichelberger chairs. The committee meets next 2 p.m. Wednesday.
The legislation contains provisions similar to House Bill 316, which proposes defined contribution pension plans for police that are transferrable among jurisdictions.