Senate Bill 1 clears House, heads to governor

Senate Bill 1 clears House, heads to governor

Author: Jason Gottesman/Thursday, June 8, 2017/Categories: News and Views

It was a year ago this week that Gov. Tom Wolf signed major alcohol sales reform legislation, and this week the legislature sent him the largest public pension reform legislation Pennsylvania has seen in decades.


After years of work, debate, and emotion, the Pennsylvania House of Representatives put the final votes to Senate Bill 1, passing the measure by a vote of 143-52 Thursday morning.


As we previously reported, Senate Bill 1 consists of what is said to be a compromise proposal between all four caucuses and the governor that provides three different pension reform plans.


The first is a default side-by-side hybrid defined benefit-defined contribution plan that would have employees contribute 8.25 percent of their compensation to be divided among the DB and DC components (5.5 percent (DB) and 2.75 percent (DC) for PSERS members; SERS members five percent (DB) and 3.25 percent (DC)).


On the employer side for the default plan, the DB contribution would be based on an actuarial determination, while the DC contribution would be 2.25 percent of compensation. The default plan also has a multiplier of 1.25 percent for DB plans.


Employees would have the option of selecting an alternative side-by-side hybrid defined benefit-defined contribution plan that would have employees 7.5 percent of their compensation to be divided among the DB and DC components (4.5 percent (DB) and three percent (DC) for PSERS members; SERS members two percent (DB) and 3.5 percent (DC)).


The employer contribution for the DC component would be a flat two percent and the alternative plan carries a lower multiplier of one percent.


Additionally, a third plan is given that is in the form of straight defined contribution plan. This has employees contributing 7.5 percent of total compensation with an employer contribution rate of two percent for PSERS and 3.5 percent for SERS.


The new plans would apply to employees beginning in 2019; January 1 for PSERS and July 1 for SERS. It exempts out State Police, Corrections Officers, and other hazardous duty personnel, but it does apply to new judges and legislators elected or appointed after the effective date for SERS employees.


The plan would require lump sum and early retirement withdrawals be done on an actuarially neutral basis, makes changes to how final average salary is calculated and limits “spiking,” extends the shared-risk/shared-gain provisions of Act 120, and plows back any savings into the unfunded liability.


Additionally, it creates the Public Pension Management and Asset Investment Review Commission with the goal of studying the performance of current investment strategies, a cost/benefit analysis of passive vs. active investment strategies, and how changes to investment strategies can result in savings to the plan. The commission must also make recommendations for investment strategy changes that will result in $1.5 billion and $3 billion in savings for the system over a 30-year period depending on the valuation used.


The overwhelming vote in the House reflected a similar vote in the Senate, where the measure passed 40-9 earlier in the week.


The reasons for why people voted for and against the bill were the same.


For some, the legislation does not go far enough in terms of plan design or paying down Pennsylvania’s public pension system unfunded liability, which conservative estimates put around a combined $70 billion.


“They say that a camel is a horse designed by committee, but it would take a committee of camels to design something worse than Senate Bill 1,” said Rep. John McGinnis (R-Blair). “Give credit where credit is due: when it comes to figuring out how not to do the right thing for taxpayers on pension reform, we have always been pretty clever in this building and history repeats today.”


Others argued the plan does not save any money in the short-term, but provides a benefit reduction for future hires.


Those supporting the plan won the day, however.


Rep. Mike Tobash (R-Schuylkill), who has worked with Rep. Warren Kampf (R-Chester) over the last several sessions to craft and shepherd pension legislation in the House, praised the bill.


“This pension problem that we have got is crushing our schools, it is destroying our budgets,” he said. “This bill has Pennsylvania focusing on its future, it is forward thinking, it is proactive, it is a chance—it is our chance here today to address the biggest financial problem that faces this state and to be part of a better future for Pennsylvania.”


The legislation is poised to be signed by Gov. Tom Wolf after the Senate takes the procedural step of signing the legislation on Monday.


“The passage of Senate Bill 1 is an example of how Harrisburg can come together to make progress on issues that matter to the people of Pennsylvania. The collaborative and cooperative process that led to consensus is a byproduct of both Republicans and Democrats working with my administration to achieve significant reform," the governor said Thursday. 


"This pension compromise achieves my foremost goals: continuing to pay down our debt, reducing Wall Street fees, shifting risk away from taxpayers, and providing workers with a fair retirement benefit, while providing long-term relief to school districts. I look forward to joining members of the House and Senate, from both sides of the aisle, to sign this important bill into law.”