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Politics & Government

Chambers, Business Groups Call on Harrisburg to Enable Municipal Pension Reform

The Coalition for Sustainable Communities (CSC) is calling on state lawmakers to include municipal pension reforms in upcoming deliberations.

“We have literally dozens and dozens of municipalities with very severe pension problems across Pennsylvania. These are pension problems that, without changes to pension laws, municipalities will never be able to pay off,” said Brian Jensen, executive director of the Pennsylvania Economy League of Greater Pittsburgh, and member of the CSC.

The changes being requested are to the binding arbitration process between municipalities and labor groups and municipal pensions themselves. Jensen said under the current system, binding arbitration awards almost always favor employees, rather than municipalities, which can further aggravate financial hardship for smaller communities. Plus, he said right now, there is no guarantee that a municipality would be able to pay for awards.

“So a fiscally distressed municipality can go into an arbitration hearing and end up with an award that they cannot afford to pay, there’s no provision in the law to forbid that,” he said.

Arbitration reform, said Jensen, should include a guarantee and he adds pension benefits and other post-retirement benefits should be left out of the process.

Other suggestions for changes to the arbitration process include:

  • Ensure that standards for awards include a justification of the award based on the evidence presented and a calculation of new costs – a municipality’s ability to pay;
  • Prohibit post-retirement health care and pension benefits not required by statute from being the subject of collective bargaining;
  • Penalize either party for failing to engage in good faith bargaining;
  • Start the collective bargaining process earlier in the year and require arbitration to be requested earlier;
  • Expand the list from which a neutral arbitrator is selected from 3 to 7;
  • Require the cost of arbitration be shared equally between both parties;
  • Require arbitration sessions be open to the public; and
  • Broaden the avenue for the appeal process and for municipal relief when the Auditor General identifies an illegal pension benefit.

For municipal pensions, the coalition is requesting the following changes:

  • For new hires, shift from defined pension benefit to a hybrid plan – more modest defined benefit supplemented by a defined contribution plan;
  • Require pensions to be calculated on base pay only, eliminating “spiking;"
  • Remove pension benefits from the collective bargaining process;
  • Freeze benefits for existing public safety personnel;
  • Provide a service related disability benefit;
  • Establish pension plan portability options for new hires; and
  • Decrease vesting period, increase retirement age and length of service.

“Without both changes in the way we do binding arbitration and municipal pensions in Pennsylvania, you’re going to see more municipalities going into financial distress, Act 47, and you’re going to see more municipalities raising their tax rates and reducing their services, and that’s an unsustainable situation,” said Jensen.
According to the CSC, one-third of Pennsylvania’s municipal pension plans are considered distressed and almost every county in the state has at least one municipality with a pension plan under a high level of financial distress. Jensen said the hope is that provisions to change municipal pensions and arbitration processes will be included in upcoming state legislation.

In the meantime, Pennsylvania State Treasurer Rob McCord is teaming up with an ally of organized labor to oppose Governor Tom Corbett's plan to overhaul the state's largest public employee pension plans.

McCord and economist Stephen Herzenberg of the left-leaning Keystone Research Center said Tuesday that a proposal to divert newly hired state workers into a 401(k)-style plan would not save money but instead would cost taxpayers more.

They contend shutting off the existing pension plan would reduce investment returns for current employees that taxpayers would have to help make up, while requiring additional money for employees enrolled in the new plan.

State Budget Office spokesman Jay Pagni said the secretary and the economist ignored the fact that Corbett plans to save $11.5 billion over 30 years by reducing future benefits for current employees.