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04/16/2024 03:50 AM
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https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=S&SPick=20170&cosponId=23053
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Senate of Pennsylvania
Session of 2017 - 2018 Regular Session

MEMORANDUM

Posted: February 24, 2017 10:15 AM
From: Senator John H. Eichelberger, Jr.
To: All Senate members
Subject: Municipal Public Safety Pension Reform
 
Again this session, I plan to introduce municipal public safety pension reform legislation. This bill will provide a comprehensive approach to municipal pension relief. The legislation will contain reforms recommended by the task force headed by the Auditor General last session, and a combination of legislative proposals from last session that will provide new options (for newly hired employees) to municipalities with distressed pension plans.

In 2015, Auditor General Eugene DePasquale, at the request of Governor Wolf, reported that municipal pension liabilities are now at $7.7 billion, an increase of over $1 billion since the 2013-14 legislative session. Municipal pension distress is widespread, hitting urban, suburban, and rural areas alike with the chief cost-driver being uniformed union pensions. In fact, in 66 of Pennsylvania’s 67 counties, at least one municipality has a pension plan that is under a high level of fiscal distress. To allow this broken and high-cost municipal pension system to continue in its current state is a disservice to our public safety employees and taxpayers alike.

In full service municipalities, the overall cost of public safety is, in many cases, consuming between 50-70 percent of the respective operating budgets. This creates a constant upward pressure on both local and regional taxes and threatens basic services such as public works, public safety, snow removal, and road maintenance. This ever-growing fiscal strain is not only a threat to basic municipal services, but to the pension funds themselves. In distressed communities across the Commonwealth and the country, pensions for current and retired police and fire employees are now in jeopardy. Pennsylvania has the ability to turn the tide and protect these well-deserved pensions, as well as current and future jobs, with a fair and sustainable plan. This legislation takes the necessary corrective action needed by offering full service municipal governments the tools needed to prevent widespread pension collapse and reverse the current deterioration in public safety services.

The bill will would add a chapter to Municipal Pension Plan Funding Standard and Recovery Act (Act 205 of 1984) to provide for the following:

The Governor’s Task Force recommendations shall be implemented, meaning all municipal pension plans:
  • shall use an assumed actuarial rate of return not to exceed PMRS rate + 1.5 within 10 years (except current and future PMRS member plans which shall maintain exact PMRS rate);
  • shall pay annual MMO in full or lose Act 205 funding;
  • shall limit total compensation so as not to exceed 110% of base salary annually (in other words, a 10% cap on overtime);
  • shall not use state aid under Act 205 for administrative fees;
  • shall not authorize DROPs;
  • shall adopt GASB accounting standards;
  • shall publicly disclose data on pension liabilities; and
  • shall not be permitted to enhance or diminish pension plans by ordinance or through collective bargaining or arbitration.
Municipal employers with a pension plan funded at 90% and higher:

  • May maintain current pension plan structure for all employees, current and future;
  • May, for future employees, choose either:
    • Cash Balance Defined Benefit or
    • Defined Contribution Benefit.
Municipal employers with a pension plan funded between 50.1% to 89.9%:

  • Shall choose one of two pension plan structures for future employees, either:
    • Cash Balance Defined Benefit , or
    • Defined Contribution Benefit.
Municipal employers with a pension plan funded at 50% and below:

  • Shall shift the administration of both current and future plans to the Pennsylvania Municipal Retirement System.

  • Future hires shall receive PMRS-designed and managed Cash Balance Defined Benefit plan.

Other highlights include:
  • All current municipal uniformed union pensions remain at existing benefit levels;
  • All pensions, for current and future employees, are removed from the collective bargaining process so that municipal employers can control costs based on sound actuarial data while slowly paying down their existing pension liability;
  • The unaffordable and unfair practice of salary “spiking” (which occurs when final base pay calculations include overtime hours and unused sick/vacation days) is ended;
  • An optional 457 investment plan as an additional employee retirement tool is authorized;

Please join me in sponsoring this legislation which I believe will improve job and pension security for current and future municipal uniformed union employees.