public pension reform

PA Pension Crisis: A Vote to Change the Pension Laws is a Vote to Protect the Taxpayers

Unfunded pension liabilities are the dark cloud hanging over the state budget. Years of underfunded retirement promises to public employees has plunged the state into a financial black hole that is approaching $50 billion. The cost of doing nothing increases on a daily basis, and translates into higher property taxes, an inability to fund public education in the manner in which it deserves and painful cuts to critical government programs. The time is now for meaningful pension reform.

Facing huge shortfalls in the two public pension systems in Pennsylvania – PSERS (Public School Employees’ Retirement Systems) and SERS (State Employee Retirement System), State Rep. Warren Kampf (R-157) turned to a strategy that a lot of private companies adopted years ago – moving workers away from the guaranteed pension plans and toward 401(k)-type retirement savings plans.  In 2013, he introduced two pension reform bills to move the public pension systems toward a defined benefit plan with defined contribution systems for all new hires while protecting the benefits of employees currently in the system.

Working with Mike Tobash (R-125) from Berks County, Kampf’s House Bill 1353 was amended to a hybrid pension reform plan that would not change benefits for current employees but would place new employees in a “stacked” pension system, including both a defined benefit and a defined contribution component. An overview of the proposed hybrid plan, including details on the defined benefit and defined contribution aspects, from Tobash website indicates:

  • Benefits of current employees would not change
  • All new state and public school employees would be subject to the same plan
  • The plan is a combined traditional, defined benefit plan and 401-K-type defined contribution investment plan
  • Bill would include provisions to allow absences for leaves of absence, furloughs, military service, disability, maternity leave, Family Medical Leave Act while remaining in the system
  • Employee contribution would be 6 percent
  • Defined benefit for first $50,000 of salary, indexed 1 percent annually
  • Defined benefit is fully earned after 25 years of service
  • Participants are vested after 10 years
  • Defined benefit cannot be collected prior to age 65 without penalty
  • No different classes of service
  • Employee contribution of 1 percent and employer contribution of .05 percent on all compensation up to $50,000
  •  Employee contribution of 7 percent and employer contribution of 4 percent on all compensation more than $50,000
  • Employee contributions vest immediately and three-year vesting of employer contributions

Private employers decided years ago to terminate traditional pension plans in lieu of 401(k) plans and likewise, it is time for government to shift the pension plan’s risk to the worker.  Some employees prefer the 401(K)-type retirement system because it gives more control over the retirement assets, including the ability to take the money with them when they change jobs.

Pennsylvania’s pension reform bill was on a roller coaster ride this last week.  Gov. Corbett has been urging the legislature to pass pension reform, indicating that he would not pass the 2014-15 budget without its inclusion.  But rather than approving HB 1353, the General Assembly voted 107-96 to send it to the House Human Services Committee.  Sending it back ‘to committee’ could have meant the death knell for the bill.  Fortunately, that was not the case and the House Human Service Committee voted to send HB 1353 to the full House for final consideration when the legislators reconvene in the fall after summer recess.

According to Tobash website, the plan is “estimated to save between $11 billion and $15 billion over a 30-year project period” but it is not without its naysayers.  Some who oppose the proposed pension reform plan suggest that it will not solve the current underfunding problem and that it will reduce pension benefits of new employees. Although it is correct that under this plan, new employees will not have the same retirement benefits as those currently in the system, I would ask what is the alternative … do nothing and continue to feed the ballooning unfunded retirement black hole?

Doing nothing to affect the pension obligations is not acceptable, because it only allows a very bad situation to deteriorate even further.  Taxpayers in Pennsylvania are on the hook for almost $50 billion in unfunded pension liability.  The staggering pension debt should concern all of us — it threatens our state’s economy, our citizens and future generations.  Now is the time for meaningful pension reform and lawmakers need to take action.  A vote to change the pension laws is a vote to protect taxpayers – support House Bill 1353.

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