Blake, Senate Democrats Unveil Pension Reform Proposal to Save Billions for Taxpayers

HARRISBURG, March 12, 2014 – State Senate Democrats today said they would save Pennsylvania taxpayers billions of dollars and solve the state’s pension problem if their proposal to further reform pension rules, refinance billions and help school districts avoid escalating payments is adopted.

Senate Democratic Leader Jay Costa (D-Allegheny); the Democratic chairman of the Senate Finance Committee, Sen. John Blake (D-Lackawanna), Senate Whip Anthony H. Williams (D-Philadelphia); the Democratic chairman of the Senate Appropriations Committee, Sen. Vince Hughes (D-Philadelphia); and Sen. Larry Farnese (D-Philadelphia) unveiled the caucus’ proposal during a briefing with Capitol news correspondents.

With the State Employees’ Retirement System and the Public School Employees’ Retirement System drowning in a sea of underfunding approaching $50 billion, the Senate Democratic proposal would refinance $9 billion of that, further reform the state pension law to stop charter schools from receiving double-dip state reimbursements, and lower the collars on state and school district payments to provide short-term budget relief while also making it easier to manage future cost increases.

“The pension reform plan we are suggesting is smart and innovative. It saves money and creates a plausible responsible fiscal roadmap for the future,” Sen. Costa said. “Refinancing $9 billion in existing unfunded liabilities would decrease long-term payments by $24 billion. Over the next five years, it would save school districts $600 million and the commonwealth $1 billion.”

The Democratic Senators said they are making this proposal because it would avoid the dangers posed by Gov. Tom Corbett’s pension proposal, such as:

  • $2 billion in additional payments over the next four years, including $550 million more in the 2015-’16 state budget
  • $5 billion more in unfunded pension liabilities, and
  • The camouflaging of increased future costs that could add millions more to the pension crisis.

Sen. Blake repeated the Democratic Caucus’ mantra that time is of the essence for these critical changes to happen.

“If we continue to delay our responsibility to fulfill our fiduciary requirement and deliver what has been promised in retirement to thousands of educators and public employees, it will be taxpayers, their children, and their children’s children who will have to pay the bill,” Blake said. “We cannot allow that to happen.

“The Corbett administration has already refinanced billions in debt to make a bad situation better when it floated nearly $4 billion in bonds to restore Pennsylvania’s unemployment compensation reserves in 2012. We must do the same with pensions,” the Lackawanna County Democrat said.

Senate Democratic Appropriations Chairman Vince Hughes urged bipartisan support for the caucus’ proposal.

“People from across the political spectrum are, and have been, educators and state employees. They are depending on us to fix this growing problem and this is the solution we need,” Hughes said. “Republicans and Democrats in the General Assembly must work together to get this idea to the governor’s desk.”

Sen. Williams said he believes fiscally responsible lawmakers will especially like the proposal to eliminate the current practice that allows charter schools be reimbursed by the state for pension payments that are completely paid for by school districts.

“This has been a good deal for charter schools, but the set up is hurting school districts, taxpayers and students across the state,” Williams said. “Making this change will significantly reduce school district pension payments because it will eliminate the 50 percent reimbursement that charter schools now receive after districts pay the escalating pension bill.”

And, Sen. Farnese said it is important for the commonwealth to continue its defined benefits pension system because it requires financial professionals to manage contributions.

“Too many people who are approaching retirement don’t have the nest eggs to guarantee them the security and independence they need to do the things they dreamed of doing when they were working,” Farnese said. “Defined benefit pensions are still the most efficient way to save for retirement. Moving away from that system will only hurt the financial security of future generations.”

The National Bureau of Economic Research in Cambridge, Mass., issued a report in February indicating that half of the households where people are on the cusp of retirement (65 to 69 years old) have retirement accounts of $5,000 or less.

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Pension Reform Bill Will Cost PA Taxpayers Additional $40 Billion, Blake Says

HARRISBURG – June 19, 2013 – State Sen. John Blake said Pennsylvania taxpayers will be on the hook for billions if the pension reform bill reported out of the Senate Finance Committee becomes law.

Senate Bill 922 was originally heralded as a means to address the unfunded liability of the state’s two retirement funds: the State Employees’ Retirement System, or SERS; and the Public School Employees’ Retirement System, or PSERS. Supporters said it would accomplish this by shifting the pension systems from a defined benefit plan to a defined contribution plan.

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Blake, however, citing two recent actuarial analyses of the proposal, said he believes the bill would do far more harm than good.

“Two independent, objective and credible studies have proven that a transition to a defined contribution plan would cost Pennsylvanians billions more than the problem we face now,” Blake said after the committee’s vote today. “Severing our newer, younger workers from our current systems will shift the cost of meeting our existing pension obligations onto taxpayers, just as has happened in Alaska, Michigan and West Virginia.”

Blake, the committee’s Democratic chairman, said the state should allow the recently enacted Pension Reform Act 120 of 2010 to do what it is designed to do: provide some critical relief to undo the fiscal irresponsibility of prior decisions made in Harrisburg.

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.

Beyond the huge additional costs of SB 922, Blake said the state’s current pension systems’ plans are simply better for state employees and taxpayers because they aggregate investments and achieve higher returns on those investments, thus lessening taxpayer burden.

Current pension systems also promise a reasonable level of retirement security so state retirees do not have to rely on assistance to ensure dignity in their retirement. And, Blake said, the systems cost about half of what 401(k) plans cost in fees – money that supports the financial services industry but adds no value to the retirement security of Pennsylvania’s seniors when they retire.

Pennsylvania is in a fiscal challenge with its state pensions, one that is being met, in part, by the provisions of Act 120.

“SB 922 only exacerbates the problem and adds costs to Pennsylvania’s taxpayers and, as such, my colleagues and I could not support it in its current form,” Blake said.

The Senate Finance Committee referred the bill on a 6-5 vote.

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