Governor scales back goal in Pa. pension overhaul

Rebuffed last year, Governor scales back goals in overhaul of Pa. pension funds in renewed try

HARRISBURG, Pa. (AP) -- Pennsylvania Gov. Tom Corbett is making a new effort to persuade lawmakers to pare back public employee pension benefits, but the scale of the savings and changes he is seeking appear more modest than the more ambitious proposal that collapsed in the Legislature last year.

Corbett's budget secretary, Charles Zogby, said Monday the administration is studying a "hybrid" concept that would save $7.4 billion over 30 years in pension benefits for state and public school employees. In a departure from last year's proposal, it would preserve the traditional pension for lower-salary employees and shift retirement benefits that are based on earnings over $50,000 a year into a 401(k)-style plan.

Various retirement systems are experimenting with hybrid plans, and Corbett's proposed changes would target only future employees under the Public School Employees' Retirement System and the State Employees' Retirement System.

A 2011 report by the Center for Retirement Research at Boston College concluded that 401(k)-style plans are best as a supplement, not a replacement, to traditional pensions in public-sector retirement systems.

The authors, who were all associated with the center, said many public employees with more modest salaries would still be fully covered by the traditional pension under a system that capped pension coverage at $50,000. But they said such a cap would eliminate the negative publicity that can be associated with taxpayer-paid pensions for highly paid public officials, such as university presidents.

"Such an approach would ensure a more equitable sharing of risks and would also prevent headlines generated by the occasional inflated public pension benefit," the report says.

Corbett, a Republican, is also hoping to postpone some pension obligation payments required under a 2010 law at a cost of $2.2 billion to provide immediate budget relief to the state and school districts, Zogby said.

Corbett's effort last year to pare back public employee pension benefits by $12 billion over 30 years fell flat in the GOP-controlled Legislature. Lawmakers were concerned that a proposal to reduce the future benefits of current employees would never survive a court challenge, and a proposal to switch all future employees to a 401(k)-style plan drew opposition from Democrats while Republicans were rattled by projections of a massive transition cost.

The Corbett administration isn't giving every detail of the latest proposal plan since discussions are ongoing and changes are possible, Zogby said.

But, he said, someone who makes about $50,000 a year would retire with an annual retirement income of about 80 percent, including the traditional pension benefit, Social Security and personal savings.

"Certainly for the rank-and-file individual, there's going to be a retirement benefit that is going to allow them to retire in a way that is consistent with the standard of living that they've enjoyed through their working career," Zogby said.

Employees hired after 2014 would put 6 percent of salary up to $50,000 a year into the traditional pension plan and 1 percent into a 401(k)-style plan with a half-percentage point match by the employer, Zogby said. That $50,000 cap would increase over time.

For the portion of salary over the cap, employees would receive a matching employer contribution of up to 4 percent of salary to a 401(k)-style plan, Zogby said.

The idea also would prevent an employee from "spiking" their pension benefit by driving up overtime earnings in one or two years, one of the abuses the Corbett administration identified in the current pension system.