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For Immediate Release
August 28, 2009
Contact: Rita Zelonis
717-787-3280

Yaw Supports Municipal Pension Relief Measure

Amended version of HB 1828 provides assistance to distressed communities

On August 26th the Senate approved legislation designed to aid Pennsylvania's ailing municipal pension plans, according to Senator Gene Yaw (R-Lycoming) who voted for the measure.

Yaw said House Bill 1828, as initially approved by the House of Representatives, only addressed the pension crisis facing Philadelphia. A Senate amendment expanded the scope of the municipal pension relief to include all municipalities based on their level of funding for their individual programs.

Under the proposed reforms, a state board would take charge of pension funds determined to be in severe distress, a designation assigned to funds taking in less than half of what they need to remain solvent.

"This is an important and much needed reform measure," Yaw said.  "Many of the state's municipal pension plans are on the edge of bankruptcy because of mismanagement, decreased tax revenues, and the economic downturn.  We need to take action now to provide relief and protect the investment that workers have put into these plans."

The bill passed by the Senate would provide temporary reductions in the level of contribution required for distressed municipalities, targeted tax hikes to pay for the funds and reforms to the plans offered to new hires.  Other reforms would:

• Create disclosure and review standards for professional-services contracts with pension-fund administrators.
• Prohibit contractors from hiring a third party or lobbyist to communicate with the municipality or municipal pension system. Business relationships between contractors and municipal officials would also be forbidden.
• Require written justification for a professional services contract of 10 percent or $10,000.

Under the plan Level I municipalities, those at funding 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 restricted from increasing pension benefits.

Level III municipalities, those at funding levels below 50 percent, would be considered to be in severe distress. These pension systems, which are essentially bankrupt, would be taken over by the Pennsylvania Municipal Retirement Board.

HB 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 bill includes separate provisions for Philadelphia and Pittsburgh, both of which have severely distressed pension plans.

"The key point with respect to these provisions is that both cities are responsible for solving their own problems," Yaw said.  "Fortunately, in the Senate, we had strong bipartisan support for the first major revisions to our pension law in decades."