Public Pension Reform Introduced

Commonwealth Foundation applauds legislation to enroll new public employees in more predictable, affordable “Defined-Contribution” pension plan

HARRISBURG, PA — The Commonwealth Foundation joined Rep. Scott Boyd (R-Lampeter), Sen. Pat Browne (R-Allentown) (in absentia) and other members of the Pennsylvania General Assembly to announce the introduction of the “Unified Contribution Pension Plan.”

Under the “Unified Contribution Pension Plan” (House Bill 1977, and identical legislation soon to be introduced in the Senate), state, municipal, and school district employees hired after Nov 30, 2008, would be enrolled in a “defined-contribution” retirement plan—similar to 401(k) plans in the private sector. Under this plan, employers (taxpayers to the Commonwealth, local governments, and school districts) would match employees’ retirement contributions dollar-for-dollar, up to 6% of salary. Employees would be enrolled in an age-specific “lifestyle fund,” with a contribution rate of 6%—though employees may chose other options.

“Corporations across Pennsylvania are abandoning traditional defined-benefit pension plans—which are unpredictable and unaffordable—in favor of defined-contribution retirement plans to avert financial crises,” said Matthew Brouillette, president of the Commonwealth Foundation. “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 effort to establish a new defined-contribution retirement system is one of the reform ideas championed by the Commonwealth Foundation that will place the state, county and local governments, and school districts across Pennsylvania on better fiscal footing in the future.

“The Unified Contribution Plan provides numerous advantages to taxpayers, and meets many of the principles of sound retirement plan design for employees,” noted Richard C. Dreyfuss, a senior fellow with the Commonwealth Foundation. Dreyfuss, who is a pension expert and actuary, noted that the costs of a defined-contribution plan would be current and complete rather than deferred to future generations.

“From the employee’s perspective, the new plan is also advantageous,” added Dreyfuss. “The benefits package is benchmarked against the marketplace, and provides a generous employer/taxpayer match. Furthermore, defined-contribution plans are portable—employees can transfer it to any future job, public or private—and are fully owned by the employee.”

Dreyfuss estimated that a worker entering at age 30 and retiring at age 65, investing 7.5% of pay (the current SERS and PSERS employee contribution rate) and receiving a 6% employer match would—assuming a 5% annual salary increase and an 8.5% return on investment—yield a single-life pension of 98% to 108% of final pay at retirement.

“The $10 billion-plus in unfunded liabilities in the state defined-benefit plans, and pension plans in Pittsburgh and Philadelphia that are in near-crisis status, demonstrate the need for real, long-term reform,” said Brouillette. “The benefit enhancements passed by lawmakers when the pension funds were doing reasonably well illustrate the need to take politics out of public employees’ retirement plans, and offer benefit packages that are predictable and affordable for taxpayers at the state, municipal, and school district level.”

Brouillette added, “The Unified Contribution Plan treats all public employees the same—that is, there would be no more gold-plated packages for lawmakers and judges. All public servants—from the governor to state workers to legislators to teachers—are provided the same generous plan.”

“Taxpayers will also be pleased to learn that the public pension grabs through outrageous bonuses—such as the nearly $30,000 per month being taken former PHEAA chief Dick Willey for the rest of his life—will become a thing of the past under the Unified Contribution Plan,” concluded Brouillette.

# # #

The Commonwealth Foundation ( is an independent, non-profit public policy research and educational institute based in Harrisburg, PA.

– 30 –