Could pension reform vote help pave the way to Pa. budget deal?

HARRISBURG - Last week, it was the state's infamously restrictive alcohol laws that got an unexpected revision. This week, it was pension reform's turn.

On Tuesday, the House easily passed a bill that would change the retirement benefits for future state and school workers. Gov. Wolf said the measure could save the state billions of dollars, and urged the Senate to consider it.

Together, the passage of both bills carried a potentially bigger message: In two weeks, lawmakers worked at a surprisingly swift pace to tackle major issues that complicated last year's budget talks - and could have become roadblocks as talks intensify on next year's spending plan.

"I think they are desperately trying to avoid a repeat of last year," G. Terry Madonna, director of the Center for Politics and Public Affairs at Franklin and Marshall College and a longtime Capitol observer, said Tuesday. "I'm not suggesting that they are suddenly enamored with each other, but they are trying to be pragmatic."

Despite the governor's urging, it was unclear if the Senate would adopt the House's version of a pension reform bill, or if that still could be an impediment to the July 1 state budget deadline.

"It's obviously a completely different [version] than ours, and so we've got to review that," said Senate Majority Leader Jake Corman (R., Center).

In December, the Senate approved a pension bill to establish what is called a "side-by-side hybrid pension plan," which would contain both a less generous version of the traditional retirement benefit for current employees as well as a 401(k)-style plan.

The House plan, by contrast, would create a "stacked hybrid plan," in which new hires would keep the traditional benefit plan for the first $50,000 of their annual salary, indexed for inflation, and get a defined-contribution plan targeted at salaries exceeding $50,000.

House Republicans say their bill is projected to save the state $5.05 billion over 32 years - or $1.03 billion in current dollars.

Pennsylvania's pension problem is hardly a new issue - legislators have been struggling for years to find ways to rein in the rapidly rising cost of the state's pension funds for state and public school employees.

The fundamental problem is that the two funds have a combined unfunded liability of roughly $64 billion. That gaping hole is the result of bad luck and, many argue, bad politics: lackluster investment returns, combined with state officials' decisions over the last 15 years to make generous enhancements to retirement benefits and forgo payments or underfund the system.

Rick Dreyfuss, an actuary who has testified before a House committee on pension reform, said the problem with the proposals advocated in the Capitol - including the one that passed Tuesday - is that they do not address the debt already owed on the two funds.