PA Lawmaker Turns Eye to Municipal Pension Reform

By Eric Boehm | PA Independent

HARRISBURG — A plan to overhaul municipal pension plans for police and firefighters could help some struggling cities in Pennsylvania deal with millions of dollars of pension debt.

It also could bring an end to a guarantee in state law that gives police and firefighters’ unions the right to arbitration in any contract dispute.

State Rep. Seth Grove, R-York, will join with business and municipal groups from around the state on Monday to introduce a plan to overhaul some of Pennsylvania’s municipal pension systems. His proposal would create a new type of pension plan for police officers and full-time firefighters in the state’s municipalities, but it leaves Philadelphia out.

Pennsylvania municipalities face a $6 billion combined unfunded liability across nearly 2,500 separate retirement plans plans.  About $4 billion of that debt is in Philadelphia, however.

“As pension reform has hit the forefront of the public policy debate in the State Capitol for state pensions, we cannot forget our municipal pensions,” Grove said in a memo circulated to other lawmakers last month.

Grove’s plan would not change previously earned benefits for those employees and would not change anything for non-uniformed local government employees, who are enrolled in separate retirement pension plans in most municipalities.

The new plan for police and firefighters would be a so-called “cash balance” plan, which is similar to the existing defined-benefit plans but is technically different for accounting reasons.  Plans still are funded with contributions by employees and employers at set levels combined with investment returns in the form of a guaranteed interest credit.

Targeting changes to police and firefighters’ pension plans could affect the statutory guarantee in Act 111 for binding arbitration between uniformed employees and municipalities in the state.

By altering the retirement pension plans for uniformed municipal employees, that guarantee could be eliminated, giving municipalities more flexibility in dealing with labor union contract demands.

Grove’s reform plan would not touch Philadelphia.  The city is currently following its own state-approved plan to restore its pension plans to a sustainable level.

The most recent snapshot of municipal pensions in Pennsylvania showed 26 plans with less than 50 percent of the necessary funding — with the most serious trouble in older urban and industrial places like Johnstown, Hazelton and Scranton.

“This is putting a huge financial strain on local government services, specifically in our urban cores,” Grove said in the sponsorship memo for the bill.

Scranton’s unfunded pension obligation of more than $100 million has been a major factor in the city’s recent financial struggles that left Mayor Chris Doherty no choice but to slash employee pay to minimum wage during July 2012.  More recently, the city has proposed raising taxes on residents and commuters in an effort to meet rising obligations.

The effect of Act 111 was on display in Scranton in 2011 when a state judge ordered the city to pay a $15 million arbitration settlement to the city’s firefighters after a contract dispute.

Jim Allen, secretary of the Pennsylvania Municipal Retirement System, which administers some of the municipal retirement pension plans in the state, said lawmakers should focus on the problems with the two state pension systems first and foremost.

Gov. Tom Corbett has proposed pension reforms that he wants to have included in the budget for 2013-14.  The two state pension systems — one for public school employees and one for state workers — have a combined unfunded liability of more than $42 billion, dwarfing the municipal plans’ debt.

“There are clearly reforms needed” for some municipal pension plans, Allen said.

But a more targeted approach aiming at problems for struggling municipalities while leaving the majority with healthy pension systems alone would be preferable, he said.

Lawmakers will return to Harrisburg on Monday after a two week Easter break to begin six consecutive weeks of legislative action, during which pension reforms figure to be one of the major topics of debate.

Contact Eric Boehm at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.