HARRISBURG — A dispute over the state budget has snared a potential overhaul of the pension system for state and public school employees.

The House voted 115 to 86 on a $30.3 billion spending plan Tuesday, instead of a $30.8 billion plan approved by the Senate one day earlier. Pension reform is tied to the Senate plan.

Senate leaders point to glowing reviews of their pension proposal by outside groups, but some who have been following the state’s crisis the closest are unconvinced.

Barry Shutt, a state retiree who has been conducting a sit-in at the Capitol to call attention to the state’s pension crisis, said the Senate plan falls short.

Shutt, sits in a folding chair along with protest signs near the cafeteria two or three times a week. He has been conducting his sit-in since the beginning of the year. 

Shutt said the plan “is like replacing the windows on a house when you’re not paying the mortgage.”

That’s because the proposal doesn’t seek to fill some of the $50 billion that the state already owes in future benefits to current workers and retirees.

There has been broad consensus for years that the state pension system is teetering, largely because the financial collapse of 2007 devastated its investments and exposed chronic underfunding of the pension plan.

A March report by the National Association of Retirement Administrators found that only New Jersey’s public pensions are more underfunded than Pennsylvania’s.

Pension reforms in the Senate budget don’t take much of a whack at that unfunded liability, but they will diminish the state’s risk. Senate Republicans calculate their plan could save $47 billion over 30 years.

The reforms would move new state and public school workers into individual, 401(k)-style retirement plans, while slashing the amount that the state is obligated to give them in benefits once they retire.

That approach is either the best thing since sliced bread, or the worst thing since paper cuts, depending upon whom you ask.

The plan guarantees retired workers 1 percent of their final salary for each year that they worked for the state or school system. That would be supplemented with income from the side-by-side 401-(k) plans.

Before retirement, the state would put away 2.5 percent of an employee’s salary into a personal retirement account. Between the two plans, public school workers would contribute 7.5 percent of their salaries toward retirement, while state workers would pay 6.25 percent.

Senate Majority Leader Jake Corman, R-Centre County, said a review by the Pew Charitable Trusts concluded the plan “would result in a national model for reform and establish Pennsylvania as one of the brightest turnaround stories among states.”

School teachers hired after July 2017 and state employees hired after July 1, 2018, would be moved into the new plans.

Meanwhile, existing employees will see more modest changes. That includes changing how a retiree’s benefits are calculated.

The pension benefit is now based on an average of an employee’s salary over their final three years on the job. The Senate plan excludes overtime from that calculation, or stretches the average over the last five years if an employee wants overtime included.

Also, if the state’s pension investments underperform, employees would be asked to contribute more toward the cost of their pensions.

The Pennsylvania School Board Association supports the plan. The conservative American Legislative Exchange Council endorsed its “strong reforms.”

Critics from across the political spectrum are less enthusiastic.

State Rep. Fred Keller, R-Union County, dismissed it as “less worse” than doing nothing. He objects to the plan’s move to delay scheduled pension payments now due under old pension reform laws.

Under the Senate plan, a scheduled payment to the pension system will be cut by about $170 million in 2016-17, said Senate Majority Whip John Gordner, R-Columbia County.

Senators say that money will be offset by savings in future years.

The House plan does not account for pension reforms approved by the Senate on Monday.

The state’s largest teacher union objects to the Senate plan in stronger terms.

If the changes are enacted, only state workers in Kansas and Alaska would have worse retirement benefits than new employees in Pennsylvania, said David Broderic, a spokesman for the Pennsylvania State Education Association.

He pointed to an analysis by the the Keystone Research Center, a labor-linked think thank, that found the average retirement benefit for state and public school workers in Pennsylvania is a little more than $25,000 a year.

The group examined 100 state pension plans and estimated that Pennsylvania  government retirees are in the bottom quarter, in terms of how generous their benefits are.

John Finnerty covers the Pennsylvania Statehouse for CNHI’s newspapers and websites. Reach him at jfinnerty@cnhi.com.