HARRISBURG, August 26, 2009 - - State Sen. Jim Ferlo (D-Pittsburgh) announced today that legislation containing key statewide pension reforms passed the Senate.
“I believe that this bill will help municipalities live up to their obligation to maintain healthy pension funds for current employees,” Ferlo said. “It will also ensure that future employees are offered a retirement benefit by preserving the health of municipal pension plans that are currently caught in “death spiral” of low asset value and red ink. We had to act to make sure that the stock market crash of 2008 did not continue to drag our worst off pension plans into bankruptcy.”
Ferlo was instrumental in crafting the pension reform amendments that included three of the four points that Pittsburgh Mayor Luke Ravenstahl asked for at the beginning of the year in his four point plan: Prohibit the use of overtime in the calculation of pension benefits, permit for defined contribution plans to be offered to new employees, and for there to be pension plan consolidation at the state level.
Ferlo added, “This plan was essential to nurse Pittsburgh’s pension fund back to health. I commend Mayor Ravenstahl for the steps that he’s taken to address the operating budget of the City. I believe that this could be the last piece of the puzzle to solving the legacy issues that the Mayor inherited.”
Ferlo cited the stock market crash of 2008 as the main reason many of Pennsylvania’s pension plans have fallen into disrepair. The crash has significantly reduced the value of assets that are needed to pay future benefits to retired municipal employees. For instance, the City of Pittsburgh, in the two years, went from a 47 percent funding ratio, to below 30 percent funded. This has left so little value in the pension fund that they can no longer earn enough to cover the annual red ink that these municipalities are incurring.
Amendments to House Bill 1828 provide for a new relief program for distressed municipal pension plans, except for Philadelphia, by creating two new programs at the PA Municipal Retirement System called the Municipal Pension Recovery Program and the Cooperative Municipal Pension Program:
- Municipalities will be divided into 4 groups by the health of their pension fund.
- Those municipalities that are above 50 percent funded will be given certain abilities to manage their pension funds that will relieve their operating budgets.
- Those plans under the 50 percent funding threshold will be taken over by the PA Municipal Pension System.
- Existing plans would be “locked down” and placed in the Municipal Pension Recovery Program. This mean that the current employees pension benefits would be frozen and no longer subject to collective bargaining agreements, arbitration decisions, or any benefit enhancement of any type. Collective bargaining for pension benefits for these plans would be lost entirely.
Ferlo added that new employees would go into a new plan called the Cooperative Municipal Pension Program which would have no unfunded liabilities, and become the permanent plan in the future.
“I believe that we have come up with an equitable solution to Pennsylvania’s ailing pension plans,” Ferlo said. “I hope that we can advance this measure to the governor’s desk and provide much needed relief to our cities.”
The bill now returns to the House of Representatives.
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