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House of Representatives
Session of 2017 - 2018 Regular Session

MEMORANDUM

Posted: March 21, 2017 10:18 AM
From: Representative Keith J. Greiner and Rep. Seth M. Grove
To: All House members
Subject: Cash Balance Municipal Pension Reform
 
In the near future we plan on reintroducing, from last session, House Bill 316 to reform municipal pensions which was passed out of the House State Government Committee. According to the most recent testimony from the Auditor General’s office, municipalities have over $10 billion in unfunded pension liabilities.

Addressing the rapid increase of pension costs now poses the single greatest challenge facing many of our local governments. In particular, local governments now struggle to fund essential services as growing pension costs continue to exhaust local budgets. These essential services include providing for public safety, as our police and fire fighters are often hardest hit by the pension crisis.

Too often local governments are financially forced to delay hiring additional safety workers or even reduce the number of public safety workers to pay the increases in pension costs. As a result, this problem threatens the safety of our communities and our public safety workers on the job. In order to address this growing problem, we plan to reintroduce a cash balance plan for new hires only and have the following features:
  • Includes all townships and boroughs with full-time public safety personnel (Act 600) and all cities, except Philadelphia.
  • It has a prospective application to new public safety hires as of a certain date. Current employees maintain all existing rights and benefits; however these benefits will be frozen at current levels. Each municipality will maintain two plans until there are no more beneficiaries in the old defined benefit plan.
  • Cash balance pension plan is a defined benefit plan that operates like a 401(k).
  • New pension for member employees will be portable. As such, each member has an individual “account balance” within a larger, locally administered pension fund. Any member of a cash balance retirement plan, who transfers, may rollover their account into another municipality’s cash balance retirement plan.
  • Each member’s account balance is comprised of mandatory employer and employee contributions and an employer guaranteed interest credit.
  • The guaranteed interest credit is tied to market performance, but set so any interest earned over the rate guaranteed to employees can be directed to pay down the unfunded liability of the old defined benefit plan. Cash balance is the only plan type which provides an avenue for paying down the unfunded liability of the old plan without requiring new revenue from taxes or bonds.
  • Full vesting occurs at 12 years and partial vesting at 8. A member is always vested in his contributions plus interest. Retirement age is increased to age 55 and 25 years of service.

  • Members of the cash balance pension plan are not eligible for post-retirement healthcare benefits, but do receive other traditional benefits including workers’ compensation, unemployment compensation, disability and death benefits.
  • 25-year modeling projections of municipal plans based on actuarial assumptions show a tremendous benefit from freezing the current DB plan benefits. Then, the additional ability to put interest earnings from the cash balance plan toward existing unfunded liability closes the gap even more.
This legislation also reflects the recommendations made by Governor Wolf’s Taskforce on Municipal Pensions. The Taskforce, chaired by Auditor General Eugene DePasquale, recommended the following measures which have been included:
  • No employer can enhance benefits under their plans which would bring the plan below 90% funding.
  • The legislation reduces the assumed rate of return within municipal pension plans from their current rate, which can reach as high as 9%, to a reasonable rate of return.
  • Municipalities must adopt recognized and accepted accounting principles
  • Removes plans from Act 111 Binding Arbitration
Failure to pass meaningful reforms will result in the situation only get worse for our communities until changes are made how municipal pensions are structured. My legislation will bring financial relief and certainty for local governments and provide a benefit which reflects the risks and sacrifices taken by local police and fire departments across the state.
Please join us and co-sponsor this legislation. If you have any questions please contact Tierna Tuckey at 783-6422 or ttuckey@pahousegop.com.