November 19, 2015

House Bill 414 Becomes Municipal Pension Reform Vehicle

FTN Math

After stalling over the summer, the municipal pension reform legislation has been amended into a new vehicle – House Bill 414.  On November 18, the Senate Finance Committee voted to incorporate the language of HB 316 and SB 755 into HB 414, a bill that has already passed the House.  A number of reform recommendations from the Auditor General led Governor’s Municipal Pension Reform Task Force were also incorporated.  

Bringing the cash balance and defined contribution plans together under one bill and adding the good government recommendations of the Task Force has the potential to make the reforms more palatable to a broader mix of the General Assembly.  

The Task Force recommendations apply to all plans current and future.  The plans:

  • shall use an assumed actuarial rate of return not to exceed PA Municipal Retirement System (PMRS) rate +1 within 10 years (except current and future PMRS member plans which shall maintain exact PMRS rate);
  • shall require municipal employers to pay their full annual MMO or lose Act 205 funding;
  • shall limit total compensation so as not to exceed 110% of base salary annually (i.e., place a 10% cap on overtime);
  • shall calculate final average salary on the average monthly compensation for the 60 months preceding retirement;
  • shall prohibit the use of state aid for administrative;
  • shall not authorize DROPs;
  • shall adopt GASB No. 68;
  • shall require that pension data is publicly disclosed bi-annually; and
  • shall not be enhanced or diminished through collective bargaining or arbitration (this includes current and future plans).

In addition to requiring the good government recommendations, HB 414 now provides choice in the make-up of the plans for most new hires.  As always, current employees and retirees will retain their present level of benefits.  Current municipal plans that are funded at 90% or more would be able to keep the status quo for new hires.  However, they would have the option to place new hires in a cash balance or defined contribution plan.  

Current plans funded below 90% but above 50% would be required to choose either cash balance or defined contribution for their new hires.  Finally, plans funded below 50% would be forced to move both their current and future employees in the PMRS for management.   New hires would be placed under the provisions of a PMRS cash balance plan.  

These reform measures offer a more comprehensive approach to the municipal pension crisis.  Overall they will help stabilize budgets for municipalities across the state, providing predictability and allowing funds to be allocated to other important services and quality of life improvements.  To make these reforms a reality, contact your state legislators and ask them to fix the numbers.