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.