CLARKS SUMMIT — State Rep. Glen Grell has a three-point plan for pension reform in Pennsylvania.
The Cumberland County Republican said his “Three Buckets Plan” would establish a cash-balance plan for new employees, address years of pension underfunding and offer modifications for existing plan members.
“I’m trying to take a look at the whole picture,” Grell said Monday in Clarks Summit. “There have been some other proposals that try to deal with the issue or deal with pieces of the issue, but I’ve thought all along that there needs to be a more comprehensive approach.
“We have to look at what kind of plan is fair for future employees, but we also need to look at how we failed to adequately fund the pension plan that we have now, and take care of that before we start asking current employees to give back.”
Grell said nothing in his plan affects anyone who is currently retired.
Starts in 2015
The first bucket involves a cash-balance plan for future employees, starting on July 1, 2015.
“It works like a defined-contribution plan in that it accumulates earnings like a defined contribution,” Grell said. “Each employee would contribute 7 percent of their income, and the employer would contribute 4 percent until 15 years of service and then 5 percent from there forward to encourage employee retention.”
All funds would be managed by the State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS), the state’s two public pensions.
At the time of retirement, the value would be converted to an annuity, like a defined-benefit plan. The annuity payments, on a monthly basis, ensure retirees under the plan do not “outlive” their retirement benefits. Grell said a cash-balance plan would save the state general fund $7 billion over 30 years.
The second bucket calls for strategic borrowing to address years of underfunding the system.
“Previous governors and legislatures have underfunded the plan for about 10 years,” Grell said. “Part of the reason was, at that time, the plans were pretty well funded and they were trying to keep the pressure off of school budgets and property tax. Unfortunately, they artificially kept those required contribution levels too low.
Grell said it’s unfair to ask existing members for concessions before the state demonstrates it’s willing to address the years of employer under funding from 2000-10. He added that borrowing $9 billion and injecting it into SERS and PSERS would save $15 billion over 30 years.
“The $9 billion would be put on a mandatory repayment schedule,” Grell said. “There is some assurance that the promise will be maintained.”
Since unilateral contract impairments are prohibited by the state Constitution, any alterations to current member plans must be on a bilateral, voluntary basis. Under the plan, current active members would be offered an incentive to opt-in for a reduction of their employee contribution rate by 0.5 percent for the rest of their careers.
In return, current members would agree to modifications to the present lump-sum withdrawal to make it actuarially neutral and change the final average salary calculation so that it encompasses the five highest salary years rather than the current three highest years. Grell said these opt-in changes would save the Commonwealth $15 billion over 30 years.
State Sen. John Blake, D-Peckville, believes Grell’s plan “adds real value to the reform effort.”
“The plan, in my opinion, is a vast improvement from what had been suggested by the administration to simply go to a 401(k) type of plan,” he said.