Public Pension News Out of Harrisburg Today

Following up on the discussion from last night’s school board meeting, there was some interesting news out of Harrisburg today.  The House lawmakers made a first stab at addressing the impending public pension crisis by voting to reduce pension benefits for future state and school district employees.

The House passed an amendment that, among other things, would raise the standard retirement age to 65 for both the Public School Employees’ Retirement System (PSERS) and the State Employees’ Retirement System (SERS). The retirement ages now are 62 and 60, respectively. It also extends the vesting period to be eligible for a pension from five years to 10 years.  If I understand the components of the amendment correctly, it would offer the taxpayers short-term relief but also incorporate long-term reform.

The size of pensions for people who are hired in the future would be cut by one-fifth, unless the employees agree to have more money taken out of their paychecks. Retirees would no longer be able to withdraw their own contributions, plus interest, in a lump-sum cash payment upon retirement.

All the proposed changes would affect new employees only. The bill would have no effect on pension benefits for 200,000 current and retired state employees and 500,000 members of PSERS or change the format of both systems’ defined benefit pension plan, under which a retiree collects a percentage of his or her salary based on a formula that weighs age, years of employment and their own contributions.  If enacted, the new pension rules would take effect January 1 for new state employees; July 2, 2011, for new school employees and December 1, 2011, for lawmakers who take office after the fall election.

The underlying bill — which could get a vote on final passage in the House as early as tomorrow — would add to the long-term cost of the pension systems by restructuring them financially but reduce the projected size of crippling payments due into both systems in two years. Should it pass, the bill would gradually limit the amount of a single year’s increase in costs to governments and school districts (taxpayers) to eventually reach no more than 4.5 percent of payroll.

It is my understanding that the prospects of passage in the House appear positive (given its wide support by both political parties).  A positive vote will send it on to the state Senate.

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  1. This is a step in the right direction, but it’s unfortunate that once again all the hit has to be taken by the next generation. Hopefully their grandparents will be able to help them out with the mortgage.

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    Disillusioned in Tredyffrin Reply:

    Ditto Ray. Realize something needs to change, just sad the next generation has to suffer for others bad management.

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  2. The legislature is full of some smart people. Without this bill the public would have seen a massive tax hike in 2012-13 as the employer contribution rate went from 12% to 29% of payroll (salaries). Since payroll constitute between 50% and 60% of a district’s budget the tax hike would have been noticeable and painful. By capping the increase to “4.5% of payroll” the legislature is betting the public will be like a frog in a pot of soon to be boiling water – too complacent to notice impending doom.

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    karlub Reply:

    Actually, citizenone, the legislature is largely full of people consumed with protecting their own hides. This may make them clever, sometimes, but not smart.

    Because initially electing to punt these payments down the road was enormously stupid, but good for the legislators themselves in the short term. Of both parties. And ever since there have been democrats and republicans– more of the the latter, but both– screaming that we have to do something about it. But the caucus leadership doesn’t have the stones to lead on the matter.

    So, still, we don’t do a darn thing about it. Still punting. It’s just that fiscal reality is making the punts shorter and shorter. Personally, I will refuse to vote for any candidate, regardless of party, who takes money from a public sector union.

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    karlub Reply:

    Don’t get me started on the lawyers all being mobbed up with each other. Alas, in many races, lawyers are the only choices with which we are presented! This is also a bipartisan, systemic problem.

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