|
For Immediate
Release
11/5/07
Contact:
Matt Moyer
(717) 787-1349
PA Must Change State Employee Pension System
A
column by Senator Pat Browne
16th Senatorial District
Too often, government tends to be reactive instead of proactive. Government
often shies away from making major changes unless a crisis is already at hand.
However, when it comes to the state's pension program, a true and severe
financial disaster is looming on the horizon and it is essential that we act
now.
Pennsylvania's defined pension benefit program is facing significant funding
shortfalls: $10 billion-plus in unfunded liabilities in the state
defined-benefit plans, and pension plans in Pittsburgh and Philadelphia in
near-crisis status. These issues, if left unaddressed, could severely impact our
state's economy and taxpayers will end up paying the costs.
When we compare state retirement benefits to those offered in the private
sector, it is obvious that the private sector is working to control costs and to
find predictability in funding those benefits. Corporations across Pennsylvania,
since the 1970s have been abandoning traditional defined-benefit pension plans
-- which are unpredictable and unaffordable -- in favor of defined-contribution
retirement plans in order to remain fiscally competitive.
It is critical both to taxpayers and civil servants that our governments
adopt a comparable retirement benefits package that is predictable and
affordable, as well as free from political manipulations.
The time is at hand, consistent with actions taken by nearly a dozen other
states, to shift Pennsylvania's pension program to a defined contribution plan,
similar to 401(k) or 403(b) plans common in the private sector. Instead of
guaranteeing a payout, such a plan would establish a set pay-in program that
uses wise investments strategies and gives individual employees the full benefit
of market returns. Pennsylvania must make its public employees partners in this
effort and allow them to tailor and control an investment strategy that best
serves their individual needs.
Changing from a defined benefit program to a defined contribution plan is at
the core of the ''Unified Contribution Pension Plan Act.'' This legislation
calls for this defined contribution program to be open to all prospective public
employees, including state employees, public school employees and municipal
employees.
Under this plan, employers (taxpayers to the commonwealth, local governments
and school districts) would match employees' retirement contributions
dollar-for-dollar, up to 6 percent of salary.
Richard C. Dreyfuss, a senior fellow with the Commonwealth Foundation,
pension expert and actuary, estimates that a worker entering at age 30 and
retiring at age 65, investing 7.5 percent of pay (the current SERS and PSERS
employee contribution rate) and receiving a 6 percent employer match would --
assuming 5 percent annual salary increases and an 8.5 percent return on
investment -- yield a pension of 98 percent to 108 percent of final pay.
Defined contribution plans offer advantages for a more mobile workforce that
was not anticipated when traditional defined benefit plans were developed. Under
the act, the plan does not include restricted vesting requirements and includes
portability which gives employees the flexibility to take their benefits with
them when they change jobs into the private sector. Further, the plan will
continue to accumulate value if an individual terminates contributions or leaves
the workforce prior to reaching retirement age.
The plan, due to constitutional limitations, would not be available to any
person currently employed in the commonwealth's public sector, but instead would
involve those individuals hired on or after Dec. 1, 2008. At that point there
would be a complete and total transition to the new retirement system for all
new hires, while those hired before that date would remain under the current
defined benefit system.
This change will reduce costs and bring needed stability to the state's
pension system. This switch to a defined contribution plan will benefit
taxpayers by eliminating future pension funding crises, costs will be clearly
defined, liabilities will be fully funded, and retiree benefits will be
predictable and sustainable.
We now live in a world where the private-sector is changing benefit
structures to meet the needs of a constantly changing global economy. The
taxpayers of the commonwealth are demanding the same of their state government.
Now is the time for us to respond appropriately. Without significant changes in
the design of Pennsylvania's pension system, the costs to reform the system in
the future will simply be unaffordable to Pennsylvania taxpayers.
State Senator Pat Browne represents the 16th Senatorial District and
serves as Chairman of the Senate Finance Committee.
Additional Information:
Reforming
Government
 Print this page
E-mail
this page
Back |
