- Associated Press - Tuesday, June 14, 2016

HARRISBURG, Pa. (AP) - Pensions for newly hired school employees and state workers would see some major changes under a proposal approved by the Pennsylvania House on Tuesday and sent to the Senate.

The House voted 136-59 to put new hires into a combination of a traditional pension plan and 401(k)-style benefit plan, which supporters said would save the debt-plagued public pension systems billions over the coming three decades.

A spokesman for Democratic Gov. Tom Wolf, at home Tuesday recovering from a procedure to treat prostate cancer, said he would sign it in its current form.

The bill’s prime sponsor, Rep. Mike Tobash, R-Schuylkill, said the proposal “changes what has not been working and I know in my heart that time will look favorably on what we do today.”

It would not alter benefits for retirees or current employees, but starting in 2018 new hires would only qualify for a traditional pension benefit on their first $50,000 of pay, an amount that would rise 3 percent a year. For pay above that amount, and on all pay after 25 years, all retirement benefits would be through a new 401(k)-style plan similar to what is widely used in the business world.

“We will be fully 20 years behind the private sector,” said Rep. Warren Kampf, R-Montgomery, who voted yes. “It is high time that we enact legislation which creates a defined contribution plan.”

Two large pension plans that cover school employees and state workers together currently have a projected debt of more than $50 billion. The bill was designed to cut about $5 billion from the state’s projected payments of $200 billion in the coming 30 years.

About one-third of U.S. states already administer a mandatory or optional 401(k)-style retirement benefit for employees, according to the National Association of State Retirement Administrators.

Democrats who have been protective of the existing system said little during the debate. Forty-nine Democrats and 10 Republicans voted against the bill.

“I am very, very skeptical about the merits of cutting people’s pension benefits because some model somewhere, some assumption says we have a $60 billion debt,” said Rep. Mark Cohen, D-Philadelphia. “I do not think that is a real figure.”

The bill faces an uncertain future in the Senate, where both Republican and Democratic leaders have expressed reservations. In December, the House rejected a Senate GOP pension bill designed to cut the traditional pension benefit in half for most new state and school employees while creating a 401(k)-style plan alongside it.

Senate Majority Leader Jake Corman, R-Centre, said the Senate’s plan would better reduce the risk of increasing the pension systems’ debt.

Neither approach will generate short-term relief from the pension debt or pension obligation payments that have risen by several billion dollars in the last five years.

The Senate GOP’s core concern about the House bill is that most new hires are paid less than $50,000, so they would be entirely within the traditional pension benefit plan, Corman said.

“By keeping so many people still in the defined benefit you are not lessening the risk to the taxpayers, and that’s my concern,” he said.

Corman said the Senate was expected to address the bill immediately, in hopes of finishing pension legislation this month.

The bill would have workers contribute 6 percent of earnings on their first $50,000 in pay for the first 25 years of service to the traditional pension, also called a defined benefit plan. They would pitch in a much smaller amount to the defined contribution plan, but after reaching the salary or 25-year limits, they would pitch in 7.5 percent of their earnings. The state’s contribution would increase once the employee reaches 25 years and on pay above $50,000.

State troopers would not be forced into the defined contribution plan.

Savings from the changes would be plowed back into the pension system.

Copyright © 2018 The Washington Times, LLC.

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