Pennsylvania's Senate Finance Committee, in a 6-5 vote on Wednesday, moved a pension-change bill that left out benefit reduction measures and tax limits proposed by Gov. Tom Corbett.
The measure would put future state employees into a 401(k)-style plan while knocking out the governor's provisions to cut benefits for most existing state and school workers and reduce taxpayers' payroll contribution to pension plans next year.
The full Senate has yet to schedule a vote on the compromise bill offered by Majority Whip Pat Browne, R-Allentown. The House must also consider the bill before the legislative session ends June 30. The Senate will reconvene Monday.
The 401(k) plan, also called defined contribution, would kick in for state employees hired after Jan. 1, 2015, and for school employees hired after July 1 of that year.
Pennsylvania has two retirement funds, the State Employees' Retirement System and the Public School Employees' Retirement System.
Corbett, who has estimated Pennsylvania's unfunded pension liability at $47 billion, put a positive spin on Wednesday's developments.
"The introduction of a defined contribution plan for future employees protects the future of our pension systems by shifting investment risk away from taxpayers, while also providing a best-in-class plan for future employees," he said in a statement. "We will continue to work with the legislature to address other aspects of pension reform."
Moody's Investors Service last year downgraded Pennsylvania's general obligation bond rating to Aa2 from Aa1. Fitch and Standard & Poor's assign AA-plus and AA ratings, respectively. All three warned about the state's escalating pension liabilities in April, when Pennsylvania sold $950 million of GO bonds.
While Corbett wants a pension bill on his desk by June 30, pension overhaul is but one hot-button issue on a crowded legislative plate as the session winds down. A transportation funding bill and liquor privatization are also up for debate.
"The Senate Finance Committee is moving in the right direction to lower unfunded liabilities," added David Fiorenza, a Villanova School of Business professor and former chief financial officer of Radnor Township, Pa.
Democrats on the committee all voted Wednesday against the bill.
The party's committee chairman, John Blake, D-Archbald, cited actuarial analyses of the proposal by Buck Consulting and the Keystone Research Center that say the bill would cost taxpayers another $40 billion and increase the cost of retirement plans for future employees by $2.3 billion.
Buck Consulting released the results of a 30-year actuarial study last week of the PSERS pension plan, which followed a similar analysis in May of the SERS retirement fund. Together, according to the Keystone Research Center, the Corbett pension reform plan would cost taxpayers another $40 billion and would increase the cost of retirement plans for future employees by $2.3 billion.