Senate Sends Pension Reform Plan to the House

The pension reform bill approved by the Senate today (June 5) will bring public employee retirement benefits closer to private industry standards and help school district address escalating costs that must be borne by local taxpayers, according to Senator Dan Laughlin.

“We cannot afford the status quo,” said Senator Laughlin. “Pension premiums accounted for nearly $32 million of the Erie School District’s budget last year. Those costs have increased steadily and dramatically over recent years. Those hikes have often swallowed up all or most of the annual state funding increases from Harrisburg. They essentially increased the property tax burden on residents and small businesses and took away funding that should go to improve the quality of educational resources available to students.”

Senate Bill 1 is projected to save more than $5 billion and shield taxpayers from $20 billion or more in additional liabilities if state investments fail to meet projections. In addition, the bill creates a new Pension Management and Asset Investment Review Commission to study ways to reduce investment costs with the goal of saving an additional $3 billion.

Pension benefits already earned by current employees and retirees are not affected by Senate Bill 1. The legislation offers all new public-sector employees one of three different retirement planning options – a defined contribution plan similar to the 401(k) system offered by most employers in the private sector, or one of two hybrid plans that combine a 401(k)-style system with the defined benefit system that state employees and school employees already enjoy.

            “These are steps in the right direction,” Senator Laughlin said. “They make changes that will allow Pennsylvania to move forward in addressing costs. Defined contribution plans are the standard in the private sector, so this is hardly a radical step. It is also important to stress that the new pension options would only apply to new hires. There are no changes to benefits for retirees or current employees, but current employees could voluntarily opt into the new system.”

The new options would provide greater flexibility for employees who do not spend their entire career in public service while still providing good retirement security for career workers. Most employees who leave service with 20 years or less of service time would see a better benefit under the new system than they would have earned under the current system due to the portability of the 401(k)-style plan.

Senate Bill 1 includes a shared risk and shared gain provision further protecting taxpayers. If investment returns fail to meet projections over a long enough period of time, employees in the defined contribution system could pay slightly higher contribution rates. However, if investments perform better than projects, employees would pay a lower rate for their benefits.

The bill now goes to the House of Representatives for consideration.


Contact:          Matt Azeles       

Back to Top