New strategy to address Pa. pension debt includes borrowing

After long studying Pennsylvania’s pension debt, a state House Republican believes he has a plan to address unfunded liability estimated at more than $40 billion.

 

The proposal is a departure from those offered by Gov. Tom Corbett and other Republicans in the state Legislature. Instead of mandating changes to current state and school employee pension plans that could bring benefits down, Rep. Glen Grell of Cumberland County wants to make the changes optional, so as to ward off court challenges.

Grell’s measure relies heavily on borrowing, not a popular idea with the Corbett administration.

But he said it shows the state is willing to make up for years of paying less into the public pension funds.

“I can’t go with a straight face to any current employee who’s been paying 7.5 percent or 6.25 percent into this fund and say ‘we need you to make a concession’ unless I’m able to deliver on the making up for that 10 years of underfunding,” Grell said. “So I think I would get zero percent take-up on current member changes if we didn’t have the borrowing to help make up for that past underfunding.”

In a best-case scenario, Grell said his plan could address $37 billion of the $45 billion pension debt.

“Admittedly, not every current employee is going to sign up for these changes and this is showing you what can be accomplished if all of the pieces fall together,” he said. “If all the pieces don’t fall together, the savings are going to be less.”

The proposed changes would not affect current state and school retirees -– only future employees and those current employees who opt to see their benefits potentially lowered, Grell said.

Future employees would be enrolled in a hybrid of the traditional pension plan and the 401(k)-style plan. Such an approach would eliminate the large transition costs of switching to an all 401(k)-style system, Grell said.