PA Senate Committee Approves State Takeover of Pensions

August 25, 2009 ( - The Pennsylvania Senate has approved legislation proposing the Pennsylvania Municipal Retirement System take over municipal retirement systems with less than 50% of the assets needed to meet liabilities.

The Pittsburgh Tribune-Review reports that the takeover amendment shaped by Finance Chairman Patrick Browne for municipal plans under 50% funded:

  • Allows “severely distressed” plans to make reduced payments toward pension costs;
  • Requires revised benefit plans for new hires, requiring them to contribute to their pension;
  • Allows for defined contribution plans under which employers contribute at a set rate but the benefits are not guaranteed;
  • Establishes a code of conduct for investment firms; and
  • Calls for municipal pension employees in Pittsburgh to be given “hiring priority” in the state system.

Pennsylvania’s Public Employers Retirement Commission (PERC) recommended the legislation in July (see PA Proposal Would Move Distressed Municipal Pensions to State ).

According to the Associated Press, the amendment also would bar elected officials from participating in plans that allow employees eligible to retire to pick a retirement date four years in the future, then amass pension payments at a 4.5% interest while continuing to work and collect their salaries.

The full Senate could vote on the legislation as early as Wednesday. The bill would have to be reconciled with a House bill before being passed into law.

Pittsburgh is among the roughly three dozen municipalities that could be taken over by the Pennsylvania Municipal Retirement System. Pittsburgh's $899 million plan is 28% funded.

The Associated Press reports that the amendment would dedicate 6.75% of the money Pittsburgh collects from parking to help pay the city's minimum pension obligation. It would allow the city to increase the tax if it sells or leases its parking garages.

The legislation also would allow Philadelphia to raise its sales tax to 8% from 7% for five years, which would raise an estimated $580 million that would be used to pay off pension contributions that the city has deferred, according to the AP. Under the amendment, Philadelphia would have to freeze pension benefits for current employees and adopt revised benefits for new employees that cost no more than 75% of the existing plan.

A recent report indicated the Philadelphia plan is facing the most severe underfunding in over a decade (see Philadelphia Pension Faces Most Severe Underfunding in over a Decade ).