A Republican state lawmaker and Democratic mayors are collaborating on an effort to overhaul Pennsylvania's municipal pension system.
Rep. Seth Grove, R-Dover, has filed a bill that would shift new employees to a cash balance hybrid plan that combines traditional defined benefit and 401(k)-style defined contribution plans, while current employees would keep their existing rights and benefits at current levels.
Grove said his bill, which is pending the House local government committee, intends to ease the pension burden on cities, towns and counties.
"As Harrisburg policymakers debate state pensions, we cannot forget about our municipalities, many of which are grappling with unsustainable pension costs, often out of their control," said Grove, who represents York County.
Kim Bracey and Rick Gray, the Democratic mayors of York and Lancaster, respectively, endorsed Grove's bill.
According to Gray, pension costs in his city have forced cuts to public safety services. Since 2007, he said, police personnel expenses in Lancaster have increased by nearly 16% despite a 15% reduction in personnel numbers over that period. Fire personnel expenses, he said, spiked by nearly 20%, despite a 17% personnel reduction.
Pennsylvania is also grappling with pension overhaul statewide. Its inability to overhaul the benefit packages of its two state employee retirement plans - the State Employees' Retirement System and the Public School Employees' Retirement System -- has triggered bond-rating downgrades.
An overhaul measure by Gov. Tom Corbett failed last year despite warnings by state budget Director Charles Zogby that the Keystone State could be in line for further downgrades.
Moody's Investors Service rates Pennsylvania's general obligation bonds Aa2. Fitch Ratings and Standard & Poor's each rate them AA.
Richard Dreyfuss, a Hershey, Pa.-based senior fellow at the Manhattan Institute for Policy Research, estimated Pennsylvania's unfunded pension liability at $59 billion, using the market value of assets. Six weeks ago, state Auditor General Eugene DePasquale reported that 573 municipalities are distressed and underfunded by at least $6.7 billion as of the Jan. 1, 2011, valuation date.
Nationally, consulting group Public Financial Management Inc. estimated state unfunded obligations estimated at $833 billion. Moody's reported that unfunded liabilities of the four largest public pension plans spiked to $174 billion in 2012 from $34 billion in 2003, and to 135% of covered payroll from 33% over that period.
Grove's measure would shift new employees to a cash balance hybrid plan that combined traditional defined benefit and 401(k)-style defined contribution plans. Under Grove's bill, the hybrid plan would allow for payment for existing liabilities over time without the need for new revenue.
It would require the calculating of pensions on base pay and a small percentage of overtime, which Grove said would curb the practice of "spiking" of increasing final average salary with excessive overtime and unused sick or vacation days.
The bill would also remove pension benefits from the collective bargaining process, establish pension-plan portability options for new hires, and improve job and pension security for uniformed unions.