- Associated Press - Wednesday, May 13, 2015

HARRISBURG, Pa. (AP) - Republicans’ sprawling, fast-track pension legislation made it through the Senate on Wednesday, but Democrats attacked its central money-saving strategy as unconstitutional and said it would leave pensioners in poverty and do little to immediately relieve the pain of a $53 billion pension debt.

The 28-19 vote was along party lines, with every Democrat and one Republican against it.

Republicans, who cast the massive pension debt as the state’s greatest financial challenge, made no effort to bargain with Democrats in the Senate minority and instead suggested that the only Democrat with whom they are interested in bargaining is Gov. Tom Wolf. They hailed the bill’s passage as a historic effort to save the pension system from an outdated benefit plan that has been rendered unaffordable by longer living retirees.

“I think it’s a huge day, (when) a bill of this magnitude, this type of reform gets passed in any body,” said Senate Majority Leader Jake Corman, R-Centre. “We’ve been struggling for this for years. To get this accomplished today is historic.”

He called the bill the most comprehensive and important pension reform measure to date.

Primarily, the bill seeks to end the traditional pension system, which covers about 330,000 retirees or beneficiaries, and require concessions from many of the 370,000 current state government and public school employees. That concession would amount to a 20 percent reduction in benefits, according to the Pennsylvania State Education Association, the state’s largest teachers’ union. Meanwhile, new hires would be left with benefits about one-third the size of an employee hired under the current rules, according to an analysis by the school employees’ pension system.

However, the Senate GOP’s bill may not have much road in front of it. Leaders of the Republican-controlled House of Representatives have been noncommittal about it, and Wolf said Wednesday that it lacks fairness for workers. He continued to stand by his plan to save $10 billion over 24 years by borrowing money to restructure part of the debt and slashing fees for outside investment managers.

“It does it in a real way without cheating our employees, and I think that should be the test of any pension plan,” Wolf said.

House Majority Leader Dave Reed, R-Indiana, said he has asked for House hearings on the Senate bill, which he expects will compete with other ideas raised by House Republicans. Those ideas have tended to revolve around converting part or all of the traditional pension benefit to a 401(k)-style plan.

The $53 billion pension debt is a product of a massive 2001 pension benefit increase authorized by lawmakers, a repeated underfunding by the state government and poor investment performance during market downturns. The average annual pension paid to a retired rank-and-file state employee or teacher is about $25,000.

The Senate Republicans’ 410-page plan was introduced Friday and underwent no committee hearings, prompting Democrats to accuse the GOP of violating the public’s expectations of transparency in lawmaking. They also said the dramatically reduced benefits for future employees would do more to destroy the middle class.

“The effect of this drives people into poverty, drive senior citizens into poverty,” said Sen. Vincent Hughes, D-Philadelphia.

Business organizations and anti-tax groups supported the bill, while labor unions, including state police and teachers, blasted it.

Under the plan, the traditional pension benefit would cease to exist for people who are hired or elected in the future. Instead, they would get a 401(k)-style plan - with a 2.6 percent employer contribution to school employees and a 4 percent contribution to state government employees - and be required to pay into a cash balance plan that would help the pension systems pay down debt.

Backers of the plan say it will avoid another massive debt by relieving taxpayers of the burden of making up for shortfalls stemming from disappointing investment returns.

Actuaries say most of the bill’s $18 billion in projected savings over 30 years arise from concessions it seeks from current employees, concessions that Democrats say will disappear in court because of case law that says pension reductions violate constitutional protections of contractual obligations.

“That’s called voodoo economics,” Hughes said. “That’s called mystical math. That’s called playing a hoax on the people of Pennsylvania.”

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