Pennsylvania takes new step on troubled public pension plans

Pennsylvania is moving to cut costs again in its big public pension plans, among the nation's most troubled, after Democratic Gov. Tom Wolf signed hard-fought legislation Monday that is projected to provide a less expensive pension benefits structure in the coming decades.

Wolf signed the bill in a ceremony in the Capitol Rotunda attended by leaders of the Republican-controlled Legislature in which they congratulated each other on bipartisan legislation after years of disagreements.

In his brief remarks, Wolf called the bill fair to taxpayers and to public employees. But he also acknowledged its limitations in light of a pension debt, tabbed at roughly $60 billion and rising, that is demanding payments of roughly $3 billion more per year from the state compared with a decade ago.

"Let's be clear: This plan addresses our liability in the only real and responsible way possible, by changing the structure of pension benefits," Wolf said. "The fact is, we cannot accelerate the shrinking of our liability on the backs of our current employees."

In addition to reducing the retirement benefits of most future public school and state government employees hired after 2018, it will also shift some risk of investment losses off taxpayers and onto the public employees of tomorrow by introducing a 401(k)-style benefit.

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.

The bill is Pennsylvania's second pension benefits reduction for future employees in eight years, moves that came as states began trying to absorb recessionary investment losses in the stock market that drove up pension shortfalls around the country. Pennsylvania's pension debt is made worse by past governors and lawmakers approving a massive benefits expansion in 2001 and putting off payments for years.

With legal and political hurdles to paring benefits of current employees and retirees, the bill's impact will be limited for the next three decades. It also will not stop the rising pension obligation payments that are squeezing school district budgets.

"The fact that they have to reform for all future hires means that, eventually, and very eventually, there will be some relief," said Olivia Mitchell, executive director of the University of Pennsylvania's Pension Research Council. "However, the current defined benefit plan is underfunded and is not fixed by that reform. In other words, legislators will still have to put in place additional reforms to solve the underfunded system that's been in place for so long in the past."