- Associated Press - Friday, August 14, 2015

HARRISBURG, Pa. (AP) - Gov. Tom Wolf is pushing a set of changes to Pennsylvania’s two large public employee pension systems that he estimates would reduce the state’s pension debt by more than $17 billion in the coming decades.

Wolf provided legislative leaders this week with details in a written document, obtained Friday by The Associated Press, as they work to resolve the state’s budget stalemate, now in its second month.

The document, titled “Revised Pension Plan,” incorporates some elements of a Republican-backed pension bill that Wolf vetoed last month, along with the state budget and liquor privatization legislation.

“We tried to provide in that document an illustration of what a plan would look like,” Budget Secretary Randy Albright said Friday, cautioning that the document assumes the matter would be subject to more discussion “before we’re willing to say that’s where we are.”

The Republican plan Wolf vetoed on July 9 would have ended the traditional pension benefit for most future public school and state government employees by directing them into 401(k)-style retirement plans. Every Democratic lawmaker opposed it, and Wolf has maintained that he has better ideas about how to squeeze savings out of the debt-ridden systems that cover about 370,000 workers.

The Democratic governor’s revised plan would restrict salary spiking that helps teachers and state workers boost their pensions and would expand investment risk sharing, which under a 2010 law pertains to new hires. It would cover existing employees.

In perhaps the most surprising element, Wolf said he was willing to consider limiting how much of an employee’s salary would count toward a traditional pension.

In other words, he might support a hybrid pension system where workers stop accumulating pension credits after they reach a certain amount of pay, say $100,000. Anything earned above that amount would be covered by something that resembles a 401(k) plan.

“However, any new pension benefit plan must provide a fair and reasonable retirement benefit for future employees, and avoid incurring transition costs that would add to our unfunded liability,” the document said.

A similar idea floated by Republicans, with a $50,000 limit, stalled in the Legislature’s prior two-year session.

A spokesman for the state’s largest teachers’ union, asked about the memo, said the union is “going to keep opposing pension plans that hurt working Pennsylvanians, no matter who proposes it.”

“We have made it clear that changes to current employee benefits are unconstitutional (and) unfair to the retirement security that working Pennsylvanians have earned and paid for,” said David Broderic with the Pennsylvania State Education Association.

Albright said Wolf’s plan would only exempt state police from the so-called anti-spiking provisions, where the Republican pension bill exempted others, including prison guards. Pension benefits are based on the worker’s “final average salary,” a figure that can be increased before retirement with large amounts of overtime or salary raises.

As for risk sharing, the budget secretary said the plan would not just financially punish workers for poor investment performance by the pension system, but it also would reward them if investments do better than the 7.5 percent annual return the pension funds presume. That element of reward would help insulate the state against a legal challenge on the grounds it had changed its agreement with workers in midstream, Albright said.

Senate Republicans were evaluating what they view as a compromise offer, and had not decided where they stood on it, a spokeswoman said.

The spokeswoman, Jennifer Kocher, said Senate Republicans question whether a 401(k)-style plan that captures a portion of salary from about 5 percent pension system members was enough of a change to make benefits affordable.

In any case, Senate Republicans still oppose the $3 billion pension bond that is a key element of Wolf’s proposal, Kocher said. Wolf’s office projects that it would reduce the pension debt by nearly $8 billion, but Senate Republicans view it as too risky and bad policy, Kocher said.

House Republican spokesman Steve Miskin said Wolf’s approach did not account for payments on that bond, which he said “dramatically reduces any potential savings.”

A Wolf spokesman said the governor would pay off the debt with revenue from upgrades to the state liquor store system, so the bond payments would not affect the $17 billion in savings.

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