Will we finally have State and Municipal Pension Reform in 2015?

One of the unfinished items from the Tom Corbett era as Governor of Pennsylvania was an attempt to bring fiscal sanity to the underfunded state employees and teachers’ pension funds.

Because of a variety of reasons—some out of Governor Corbett’s control no action was taken, leaving this financial mess for incoming Governor Tom Wolf to deal with.

And mess it is. Both funds are severely underfunded, because of the 2008 great recession and because, in the teachers’ pension fund, the Commonwealth of Pennsylvania decided that the market was going so well that it gave itself and local school boards a pass in putting in their shares in the aforementioned fund.

Now we are billions in unfunded liabilities.

This is without counting local municipal pension fund problems. Pennsylvania suffers from a multiplicity of funds—almost 25 percent of local municipal pension funds are located in our fair state. Unfortunately a vast majority of these funds are deep in the red.

The City of York has announced that they will no longer have a police force or a paid fire department because the yearly payment it has to put into its pensions make these public safety employees a luxury it can no longer afford.

Speaker Elect Mike Turzai did try to deal with state pension reform last year, coming up a few votes short. All indications are that he wants to fix this problem once and for all in the coming New Year.

The State Senate did pass a bi-partisan municipal pension reform bill 5 years ago only to see it die in the then Democratic controlled House.

With a new Governor, with a fiscal pension mess and a revenue shortfall perhaps the impetus for a solution might be at hand.

To paraphrase an old saying, “Never let a good crisis go to waste.”

by Nello Giorgetti

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If you have questions please contact Michelle Vezzani at MVezzani@cohenlaw.com or the public affairs professional with whom you work.

Key Topics – Pension Reform

The Public Employees Retirement Commission (PERC) recently issued an actuarial note on Rep. Grell’s (R-Cumberland County) pension reform legislation that would place new members of the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS) in a “cash balance” retirement plan beginning in 2015.  A cash balance plan is defined as a type of traditional defined benefit plan with a defined contribution portability component.  Cash balance plans shift some of the risk of a defined benefit plan from the employer (in this case—state government and school districts) to the employees who receive benefits.

Under this legislation, employees would be given cash balance savings accounts to which employees and employers would make contributions and to which interest would be applied.  Also, this legislation proposes a $9 billion pension obligation bond to reduce some of the approximately $50 billion of unfunded liability in SERS and PSERS.  The state legislature may consider public pension reform legislation in the fall.