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Pennsylvania lawmaker offers new approach to pension reform

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HARRISBURG, Pa. (AP) — A key Republican lawmaker proposed borrowing $9 billion as part of a new approach to rein in the soaring costs of pensions for nearly 380,000 Pennsylvania teachers and state employees.

Rep. Glen Grell also advocates creating a cash balance retirement plan for newly hired employees that would guarantee an annual return of at least 4 percent. And he would offer financial incentives to current employees who agree to certain pension adjustments.

Grell, chairman of the House GOP majority task force on pensions, acknowledged that neither Republican Gov. Tom Corbett nor House leaders have embraced his proposals and said the legislation has yet to be introduced.

“There’s much work remaining to be done on this issue,” he said, standing alone on a stage, sandwiched between charts and graphs.

Corbett made pension reform a top legislative priority this year, calling for decisive action to shrink a $41 billion unfunded liability between the state’s two major public pension funds.

But his original proposal to reduce the future benefits of current employees foundered amid opposition from unions that said it was unconstitutional. Committees in both houses have since endorsed alternative bills to require newly hired employees to enroll in a 401(k)-style plan, but the debate has been in limbo since lawmakers adjourned for a summer break.

Grell said the revenue and savings produced by his plan would offset most of the unfunded liability over 30 years.

The $9 billion in borrowing would address nearly a decade of pension underfunding by previous legislatures and governors, and signal the state’s resolve to meet its pension obligations, he said. The state would cover debt service he estimated at $550 million a year.

Under the proposed cash balance pension plan, new hires and taxpayers would share the risk of investing, contributing 7 percent of their pay while employers would chip in an additional 4 percent initially and 5 percent after 15 years’ service. Investment returns of more than the guaranteed 4 percent would be split between employee and employer.

Spokesmen for the governor’s budget office and the House Republican caucus declined to discuss specific objections to Grell’s proposal.

“We appreciate Rep. Grell’s efforts and his recognition that pension reform is needed now,” said Jay Pagni in the budget office.

But the Cumberland County lawmaker received a warmer reception from the Pennsylvania State Education Association, the state’s largest teacher union, and the Pennsylvania School Boards Association.

“Rep. Grell’s ideas represent an interesting new direction, finally moving the conversation away from costly legislation that would create a new 401(k)-type plan and cost taxpayers another $40 billion,” said PSEA President Mike Crossey.

The PSEA represents 273,000 of the affected employees, while the State Employees’ Retirement System represents 106,000, Grell said.

The proposal is “worthy of further consideration as discussions on pension reform are renewed this fall,” the school boards group said. “The plan would bring an infusion of new state dollars that are needed, a component that has not been incorporated into other pension reform plans offered to date.”

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