Today I joined with a bipartisan group of House members to pass a public pension reform bill that would place new state workers and public school employees into a new hybrid retirement benefit which includes a mandatory defined contribution of 401(k)-type plan.
Public pension reform has been – and will continue to be – one of my top priorities because of the disastrous effect rising costs are having on state and school district budgets and, consequently, taxpayers. Quite simply, pension costs are one of the largest cost drivers in government today and we must change this unsustainable system.
Pennsylvania funds two large pension systems, the State Employees’ Retirement System (SERS) and the larger Public School Employees’ Retirement System (PSERS). Both are underfunded by more than $53 billion and are requiring larger shares of state and local school districts’ budget dollars to keep up with the funding requirements imposed by the state.
The legislation we in the House amended and passed establishes a hybrid defined contribution/defined benefit retirement plan for future state and school employees. The plan applies only to future employees.
State workers hired after Jan. 1, 2018, and school employees hired after July 1, 2018, would include a baseline pension based on the traditional formula of years of service multiplied by 2 percent of final average salary. That defined-benefit plan would change to a 401(k)-style plan for any income earned over $50,000 and for all income earned after 25 years’ service.
Under the defined contribution system, the responsibility for adequately funding an individual’s retirement rests more fairly between employer and employee, instead of taxpayers being responsible for fluctuations in the stock market. The new system is fair, and reduces the risk for a financial crisis.
The bill is now in the Senate for concurrence on House amendments.
The Public Employee Retirement Commission (PERC) estimates that the bill would save approximately $5 billion over 30 years.