Pennsylvania Pensions
Latest KRC Pension Primers
Pension Primer #16
Three Routes to a Pension Dead End: You Can't Save Money With a More Expensive Retirement Plan
Pension Primer #15
Making the Best of a Side-by-Side Hybrid Pension
Pension Primer #14
SB 1 Would Make Young Workers Pay for Politicians’ Mistakes
Pension Primer #13
Pennsylvania Has Modest Public Pension Benefits
Pension Primer #12
Senate Proposal Goes Backwards, Not Forwards, On Pensions
Pension Primer #11
Beware 'reforms' that ignore the real problem, add billions in new costs, and threaten the retirement security of workers
Corbett Pension Plan Does Not Equal Property Tax Relief: What the Pension Experts Say
Pension Primer #8
Cash Balance Pension Plan Could Hurt Public Employees and Taxpayers
The Facts Demand That Gov. Wolf Veto Senate Bill 1
Top 10 Facts on SB 1
Talking Points
Budget Framework Pension Deal Undercuts Retirement Security Without Saving Money for Taxpayers
Editorial Board Memo
Pennsylvania’s Proposed Hybrid Pension
Four Key Facts
Why Pension Cuts in SB 1071 Are Bad for Taxpayers
Public Pensions in Pennsylvania
Pennsylvania’s policymakers are currently debating changes to pensions for public school employees and state workers.
How We Got Here
As the Corbett administration’s pension report notes, the ingredients of the current pension challenges facing Pennsylvania include “short sighted” political decisions that led to “nearly a decade of underfunding by state governments and local school districts,” and “investment returns that failed to meet expectations” as a result of one of the stock market’s “most volatile periods in recorded history." As a result, Pennsylvania's public pension plans have $47 billion in unfunded future costs.
What Has Been Done So Far
The General Assembly enacted the Pension Reform Act in 2010, curbing rising pension costs. The Act’s reforms included:
- Reducing pension benefits for new employees by over 20%;
- Increasing the retirement age to 65 for new employees, extending the period for employees’ benefits to vest from 5 to 10 years, and eliminating the lump-sum withdrawal of their contributions at retirement; and
- Implementing an innovative “shared risk” provision for new employees that increases employee contributions if actual investment returns fall below assumed returns.
The Pension Reform Act lowered the cost to the state and schools of pension plans for new employees to 3% of salaries. It would be difficult for any alternative pension plan for new employees to beat this low cost.
Key Facts About the Governor's Proposal
Governor Corbett’s pension proposal, unveiled in February 2013, would undo much of the progress made with the Pension Reform Act of 2010 and represents a step backwards.
The plan lowers state contributions to pensions for the next five years, reduces benefits earned by current workers in the future, and enrolls future employees in a 401(k)-type defined contribution plan, among other changes.
Below are key facts about the Governor’s proposal and about Pennsylvania pensions more broadly. More detailed Pension Primers can be found here.
- The Governor’s proposal would increase Pennsylvania’s pension debt (or “unfunded liability”)-by an estimated $40 billion according to actuaries.
- Closing the state’s current pension plans to new workers also increases the pension debt—as those left in the plans grow older and retire, fund managers will invest in less risky and more liquid assets, lowering returns and requiring more contributions to meet pension obligations.
- The Governor’s pension proposal would increase the cost of pensions for new employees above the low levels (less than 4% of salaries) achieved in the 2010 Pension Reform Act.
- The Governor’s proposal does not make the responsible contributions to pensions required by the 2010 Pension Reform Act. Diverting pension contributions repeats the short-sighted political decisions that helped create the current pension debt in the first place.
- The Governor’s proposal to cut current workers’ pensions risks court reversal for violation of a constitutionally protected contract. It leaves the state uncertain of pension costs for years and then with potentially higher pension debt.
- Pennsylvania's pension debt is not the responsibility of Pennsylvania employees, who have contributed about 7% on average of every single paycheck to their own pensions. In the 2000s, Pennsylvania employees contributed nearly twice as much to their own pensions as their employers, whereas in most other states employers pay nearly twice as much as employees. Even with good benefits, public workers earn lower wages plus benefits than equivalent private-sector workers.
- The Pension Reform Act of 2010 reduced pensions for future employees by more than 20% and protects taxpayers by requiring even higher employee pension contributions if financial markets plummet.
- Corporate tax breaks have a bigger impact on the state budget than pensions. The annual taxpayer cost of funding the retirement benefits of current Pennsylvania employees is only 36% of the cost to the state of economic development subsidies and corporate tax breaks and loopholes. Pension debt is a small share of total state funding over the decades the state has to pay it off.
Where Do We Go From Here?
Three other pension proposals have been put forward since the Governor's 2013 defined contribution plan.
- Representative Grell's three-pronged proposal included the use of bonds to buy down Pennsylvania's pension debt. His plan would also switch new employees into a "cash balance" pension plan with lower pension benefits and likely lower investment returns, increasing taxpayer costs. Read about KRC's analysis of the Grell plan here.
- Representative Tobash's hybrid pension proposal would reduce retirement benefits by even more, without significant savings. Read about KRC's analysis of the Tobash plan here.
- Senate Democrats have also introduced a pension proposal that, similar to Representative Grell's, includes pension bonds and that also includes some pension savings. The end of KRC's most recent brief compares all of the pension proposals advanced since 2013 (the Governor's, Rep. Grell's, Rep. Tobash's, and the Senate Democratic proposal) and advances KRC's own framework for reform. Read KRC's comparative analysis and reform framework at the end of this brief.
Learn More
Download a PDF Version of KRC's Key Pension Facts
Digging a Deeper Hole: 10 Reasons Gov. Corbett’s Pension Plan Will Cost Taxpayers More
Memo: Switching to 401(k)-type Retirement Plans for New Employees Will Harm PA Taxpayers
Actuarial Studies on SB 922: This document from the Public Employee Retirement Commission (PERC) details the impact of Senate Bill Number 922 on the State Employees' Retirement System (SERS) and the Public School Employees' Retirement System (PSERS).
View Advisory Note for House Bill No. 1350, P.N. 1760, May 31, 2013: This document from the Public Employee Retirement Commission (PERC) details the impact of the Governor's pension proposal on the State Employees' Retirement System (SERS) and the Public School Employees' Retirement System (PSERS). It includes the findings of the actuarial studies done by the Hay Group for SERS and Buck Consultants for PSERS.
View Addendum to Advisory Note, June 11, 2013: This document includes Buck Consultants' projection to 2046 of the impact of the Governor’s plan on PSERS (not included in the May 2013 letter).
Keystone Pension Primers
Pension Primers #1 and #2
Governor’s Pension Plan Will Cost the State and Taxpayers More
Read a Press Release on Pension Primers #1 and #2 released on February 26, 2013.
Pension Primer #3
2010 Pension Reform Achieved Significant Long-Term Savings
Read a Press Release on Pension Primer #3 released March 5, 2013.
Pension Primer #4
Governor’s Proposal Delays Public Pension Payments, Repeating Short-Sighted Practices That Drove Up Pension Debt
Read a Press Release on Pension Primer #4 released April 16, 2013
Pension Primer #5
Pennsylvania Pensionomics: Public Pensions Fuel Economic Activity Across Pa.
Read the Press Release on Pension Primer #5 released June 6, 2013
Pension Primer #6 and #7
Less Bang for Pennsylvania’s Buck: Governor’s Pension Proposal Would Force Taxpayers (and Employees) to Foot the Bill for Retirement Plans with High Fees, Low Returns
A $40 Billion Oversight: Actuarial Studies Document High Cost of Governor’s Pension Plan
Read the Press Release on Pension Primer #6 and #7 released June 18, 2013
Pension Primer #8
Cash Balance Pension Plan Could Hurt Public Employees and Taxpayers
Read the Press Release on Pension Primer #8 released October 1, 2013
Pension Primer #9
Moving Backwards on Pension Reform: Tobash Plan Does Little to Reduce Pension Debt But Will Erode Quality of Public Schools and Services, Hurt Retirement Security
Read the Press Release on Pension Primer #9 released June 2, 2014
Pension Primer #10
Corbett Pension Plan Does Not Equal Property Tax Relief: What the Pension Experts Say
Read the Press Release on Pension Primer #10 released July 17, 2014
Actuarial Studies
Actuarial Studies on SB 922: This document from the Public Employee Retirement Commission (PERC) details the impact of Senate Bill Number 922 on the State Employees' Retirement System (SERS) and the Public School Employees' Retirement System (PSERS).
View Advisory Note for House Bill No. 1350, P.N. 1760, May 31, 2013: This document from the Public Employee Retirement Commission (PERC) details the impact of the Governor's pension proposal on the State Employees' Retirement System (SERS) and the Public School Employees' Retirement System (PSERS). It includes the findings of the actuarial studies done by the Hay Group for SERS and Buck Consultants for PSERS.
View Addendum to Advisory Note, June 11, 2013: This document includes Buck Consultants' projection to 2046 of the impact of the Governor’s plan on PSERS (not included in the May 2013 letter).
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