FOR IMMEDIATE RELEASE
August 27, 2009
Back

Senate Approves Municipal Pension Relief Measure 

Harrisburg -- The Senate today approved legislation designed to aid Pennsylvania’s ailing municipal pension plans, according to Sen. Ted Erickson (R-26), who supported the measure.  

Erickson said House Bill 1828, as initially approved by the House of Representatives, only addressed the pension crisis facing Philadelphia. The bill was amended by the Senate to expand the scope of the municipal pension relief to include all municipalities based on their level of funding for their individual programs.  

The measure now returns to the House of Representatives for concurrence on the Senate amendments. 

"The pension situation in Philadelphia has reached the crisis point and had to be dealt with, but with so many other municipalities across Pennsylvania struggling to meet their pension obligations, it was important to craft a broad plan for relief," said Erickson. "This is not a hand out. Municipalities have to work their way out of the problem, and this legislation provides the rules for doing so."  

The measure defines levels of distress: 

• Level I municipalities, those funding pensions at levels ranging from 70 percent to 89 percent, would be considered to be in minimal distress. They would see a reduction in contribution limits for two years.
• Level II municipalities, those at funding levels from 50 percent to 69 percent, would be considered to be in moderate distress. They would see a reduction in contribution limits for four years and be required to submit an administrative improvement plan. They would also be restricted from increasing pension benefits until specified conditions are met.
• Level III municipalities, those at funding levels below 50 percent, would be considered to be in severe distress. They would be required to enter a Municipal Pension Recovery Program and be administered by the Pennsylvania Municipal Retirement Board. They would have to revise their benefit plans for new hires to provide for a traditional defined benefit plan and/or a defined contribution plan (such as a 401k) that requires employee contributions of at least 6 percent of payroll and a matching employer contribution of 6 percent.

House Bill 1828 provides Philadelphia with a 30-year "fresh start" for amortizing its unfunded pension liability and allows the city to defer up to $155 million in pension funding in 2010 and $80 million in 2011. The deferred funding must be repaid, including 8.25 percent interest, by June 30, 2014.  

The legislation also permits Philadelphia to temporarily increase its sales and use tax by 1 percentage point, from 7 percent to 8 percent. All revenue received from the sales and use tax increase must be applied toward its pension funding obligation. The temporary tax increase would expire on July 1, 2014. 

Philadelphia must freeze pension benefits for current employees and submit a revised plan for new hires by September 10, 2009. The new plan cannot cost more than 80 percent of Philadelphia’s current pension plan. The legislation also bars elected officials from participating in a deferred retirement option plan (DROP) addressing recent concerns in Philadelphia. 

House Bill 1828 also incorporates new provisions creating a code of conduct for municipal pension systems, which will be required to adopt policies regarding conflicts of interest – including "revolving door" policies for employees of the system and contractors. 

The legislation also bars contractors from giving gifts to pension system officials and employees. Contractors also will be barred from making campaign contributions to pension system officials.  

"The pension crisis in Philadelphia provided an opportunity reevaluate how pensions are administered across the Commonwealth, and to set clear standards of fiscal and ethical responsibility," said Erickson. "The national recession may have increased the burden on municipalities struggling to fund their pensions, but there were long-term issues that need to be addressed as well, and this legislation does that."

CONTACT:

Tom Golden
(610) 853-4100

Home | Profile | News | Electronic Bill Room | District Info | Constituent Services | Contact Me | Senate Resources | State Resources | Federal Resources | Senior Resources | Veterans Resources | Kids Resources | Publications | Photo Gallery

2010 © Senate of Pennsylvania
senatorerickson.com