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FOR IMMEDIATE RELEASE
September 10, 2009

Amended Municipal Pension Bill Protects Workers, Taxpayers

By State Senator Pat Browne
Chairman, Senate Finance Committee

In 1984, Pennsylvania enacted Act 205, which is appropriately and most clearly summarized in its name "The Municipal Pension Plan Funding Standards Act."  The reason for this effort was to ensure that pension systems across Pennsylvania maintained fiscal stability to protect municipal employees in their personal financial security and the public that they serve.

At the time, pension systems across the state were suffering from significant underfunding of plan benefits.  Since the parameters of pension benefits for our many different classes of local municipalities are provided in state code, it was proper to stipulate funding standards for those plans in state code as well.

In 2009, twenty-five years later, there are still plan participants, pensioners and taxpayers at risk due to severe underfunding of plan benefits in at least 200 municipal plans statewide: regardless of several efforts to provide fiscal relief in the wake of capital market downturns; regardless of the provision of state aid to fund local systems; regardless of special assistance given to the most distressed plans; and,  regardless of the authorization of debt as a means to produce higher cash flow for plan investment.

In fact, the fiscal status of our state's largest plans when benchmarked against similar municipalities is the worst in the nation.  It is clear that the basic polices of Act 205 have not been met.  House Bill 1828, as amended by the Senate, reinforces the basic provisions and intent of Act 205.

First, this bill ensures that the current pension benefits provided to municipal workers are protected.  The amendments to HB 1828 do not and never were intended to change the longstanding policy of the Commonwealth that the General Assembly would not undermine retirement benefits awarded to municipal employees through the municipal contract negotiation process. 

Second, once municipal benefits are negotiated and awarded, they must be funded.  The levels of distress stipulated in HB 1828 as amended reinforce the original intent of Act 205 that municipalities must meet their negotiated obligations to their workers. 

Third, the foundation of any bargaining process between employer and employee is a stipulation and recognition of the cash flow available to structure a prospective compensation and/or benefit package.  In this regard, the parties to the bargaining process must balance the rights available to them against their joint responsibility to protect not only their own financial interest in the process but also the financial interest of the public.  Therefore, the parties negotiating benefits in a financially distressed system should not increase pension benefits until the existing benefits are adequately funded.

Only through the reinforcement of these policies, as intended in Act 205, can state and local government appropriately and responsibly protect the retirement security of municipal employees and the public.

HB 1828, as originally approved by the House, was solely intended to provide relief to Philadelphia from its mountainous pension obligations in the wake of the current economic malaise.  The General Assembly is poised to provide this relief.  However, regardless of past relief efforts, the city's current challenges, typified by its current required pension contribution of 40 percent of its total payroll, is not the result of macroeconomic trends. 

Philadelphia's future challenges, along with those of several hundred municipal plans, reflect a long-term breakdown of the basic principals which govern funding standards and polices for municipal systems.

With the clouds of fiscal disaster looming on the horizon, it is time for all parties to work in a collaborative fashion to further those principles that will ensure the long-term fiscal solvency of our local municipalities. We are all in this together. The future financial security of our municipal workers and our taxpayers will depend on it.

Contact:

Stacey Connors
(717) 787-1349

State Senator Pat Browne represents the 16th Senatorial District