- Associated Press - Tuesday, June 2, 2015

HARRISBURG, Pa. (AP) - A key Pennsylvania state Republican House lawmaker signaled support Tuesday for major provisions in a Senate Republican plan to end the traditional pension benefit for school and state government employees.

State Government Committee Chairman Daryl Metcalfe, R-Butler, said he supports replacing the traditional pension benefit for future employees with a contribution to a 401(k)-style plan and requiring many current employees to pay more to keep their current benefit level.

The benefit in a 401(k)-style plan is less likely to be manipulated to curry favor with a beneficiary group, such as an employees’ union, while the savings derived from changing current employees’ benefits is crucial to affordability, Metcalfe said.

“I think moving forward that should be on the table,” Metcalfe told reporters after the hour-long hearing. “I think it’s a necessity to sustain the system.”

Metcalfe’s comments came following the first of two House State Government Committee hearings scheduled on the bill, after the Senate fast-tracked the 410-page bill without a hearing late last month. The second hearing is scheduled for Thursday.

Republicans cast Pennsylvania’s $53 billion pension debt as the state’s greatest financial challenge, and Senate Republicans have made it their top priority to pass legislation that overhauls and pares back benefits.

The Pew Charitable Trusts calls Pennsylvania second-to-last in the nation since 2003 in making annually required payments into its two major pension funds. That delinquency is the largest driver of the pension debt, it said.

In testimony Tuesday, Greg Mennis of the Pew Charitable Trusts said that moves to funnel newly hired employees into a 401(k)-style system would improve cost certainty for the state and increase retirement savings for many workers who change jobs before retirement. However, it would result in greater “benefit uncertainty” for workers because of investment risks and reduce benefits for career workers, Mennis said.

Actuaries estimated that the bill could save $18 billion on more than $180 billion in projected payments over 30 years. However, Democratic lawmakers oppose ending the traditional pension benefit, and they say that requiring workers to pay more to keep their benefit level - the bill’s primary money-saving provision - violates state constitutional protections against breach of contract.

Gov. Tom Wolf, a Democrat, also opposes ending the traditional pension benefit, and has instead said his plan is fairer to workers. He is proposing to save $10 billion over 24 years by restructuring $3 billion in pension debt and slashing fees that the pension systems pay to investment managers.

Those fees amount to about $700 million a year.

James Miles, a Penn State finance professor, told the committee that hedge fund managers, who typically draw higher fees, on average do not yield a better investment performance than funds that are passively managed and draw lower fees. He also said paying investment fees can lead to influence peddling and unsavory deals between pension officials and investment management firms that want the business.

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