Pennsylvania Revenue Director Touts Corbett Hybrid Pension Plan

Cost increases to Pennsylvania's two primary pension systems are unsustainable and figure to rise by more than $600 million in 2014 and 2015, the state's revenue director said Wednesday.

Speaking at a Pennsylvania Economy League breakfast meeting in Wilkes-Barre, Dan Meuser urged lawmakers to enact Gov. Tom Corbett's so-called hybrid plan, which merges components of traditional defined-benefit pension plans with defined-contribution, 401(k)-style plans for new hires.

The Pennsylvania House and Senate are scheduled to reconvene at 1 p.m. Sept. 15, though fall sessions are traditionally short during election years. Corbett faces an uphill climb in his re-election bid. A Robert Morris University poll of likely voters, released last month, had Democrat Tom Wolf leading Republican Corbett 56% to 25%, though nearly 20% are undecided.

Meuser said the hybrid plan would provide $15.1 billion in total fund savings and $7.4 billion in general fund savings over 30 years. The proposal would protect retirees and current employees.

He added that the move would greatly reduce future risk to taxpayers.

"This would be a significant shift towards a defined contribution plan with 50% of the payroll under a defined contribution plan within 30 years," he said Wednesday.

Inaction over rising pension liability has hurt Pennsylvania's bond rating. Pennsylvania is one of several pension battleground states.

Moody's Investors Service in July downgraded the state's general obligation rating to Aa3 from Aa2. The move affected $11.1 billion of GO debt. Last year, Fitch Ratings lowered Pennsylvania to AA. Both cited pension liability. Standard & Poor's also rates the Keystone State AA.

Local pension plans are also strained. State Auditor General Eugene DePasquale said last week that Scranton's municipal pension funds could run out of money in three to five years. His audit showed that over a five-year period, the city's annual pension payment obligations nearly tripled from $3.3 million in 2008 to $9.3 million in 2013.

Earlier this year, DePasquale said 573 municipalities administer pension plans that are distressed and underfunded by at least $6.7 billion. Given that rating agencies view such liabilities as debt-like, he said, widespread bond-rating downgrades could be in play.

"These plans are running the increased risk of insolvency," said Richard Dreyfuss, a Hummelstown, Pa., actuary and an adjunct fellow at the Manhattan Institute for Policy Research. "Debate has shifted from 'Can the plans be viable?' to 'How long will these plans stay solvent? Can they last three years, 10, 15 or 20?'"