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February 6, 2013

Pension plan would save districts millions

HARRISBURG — Gov. Tom Corbett’s plan to reform the funding for the two main public sector pension systems would save local school districts $138 million in the 2013-14 school year.

Over the next five years, the savings provided by Corbett’s plan would amount to $1 billion to local school districts.

While the governor’s plan calls for changing the pension plan by putting new employees in a 401k-style plan and would make other changes to existing employees’ plans, the savings would come from lowering the amount the state and local school districts pay in the form of employer contributions.

Corbett’s plan reduces current annual employer contribution limits from the mandated

4.5 percent to 2.25 percent in 2013-14.

Over the next five years, through the employer contribution limit changes, the commonwealth will realize nearly $2 billion in savings.

The governor’s office has estimated that without the changes, the pension costs would consume 60 percent of all new revenues for 2013-14, roughly $500 million that could be spent elsewhere.

The governor also proposes changing the funding formula for State Employee Retirement System members beginning on Jan. 1, 2015, and Public School Employee Retirement System members on July 1, 2015.

The governor and Republican lawmakers argue that the state has the right to adjust the formula for funding the pension system moving forward. All benefits earned by employees up until the new formula kicks in will remain unchanged.

Benefits for existing retirees are unchanged.

The key changes proposed for existing employees would be: Reducing multipliers used to calculate pension benefits; setting a ceiling of 110 percent of the average salary of the last four years of an employee’s career; capping the amount of pensionable income at $113,700; and determining retirement benefits by averaging the last five years of work. Some of those reforms are intended to limit excesses associated with employees who run up large amounts of overtime in their final years of work to boost their pensions, said Sen. John Gordner, R-Lycoming County.

A Pittsburgh-Tribune Review investigation in 2012 found that PSERS pays 336 pensioners $100,000 a year, compared with 322 in SERS. Most of the six-figure pensions from SERS go to retirees from Penn State.

Among the six-figure pensioners in PSERS was Robert Witten, the retired former chief executive officer of the Central Susquehanna Intermediate Unit, based in Northumberland County.

Witten’s annual pension payment is $187,674.

Capping the pensionable income would limit the opportunity for public employees to get such generous pensions, Gordner said.

Other lawmakers said that the governor’s pension reforms may have merit, but that they still do not address the looming issue of what can be done about the $41 billion unfunded liability.

“He’s nibbling around the edges,” said Sen. John Wozniak, D-Westmont.

Wozniak added that he does not believe that the state should alter benefit formulas for existing employees. “That is a covenant,” Wozniak said.

Public sector unions have said that tampering with the pension calculations of existing employees is illegal and would be challenged in court.

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