An amendment to the pension deferral bill in the Pennsylvania House would reduce the retirement benefits for new state and school employees, but would continue Gov. Rendell’s proposed deferment of pension costs. The legislation will now, on the whole, cost taxpayers a net increase of $27 billion in additional costs over 30 years. Further, the legislation still fails to provide pension reform.
The major details of the benefit changes:
- Any new hire would be put into a new plan with a lower multiplier at the pre-2001 level – i.e. 2% of salary times years worked, vs. the current 2.5%. The employee contribution rate would remain the same (they would have the option of a higher employee rate and higher multiplier)
- For new hires, the vesting period would be 10 years, rather than 5, and most employees would not be eligible for a full pension until age 65, or with 35 years for service. (it can be earned at 62 or 60 for some retirees under the current law)
- Retirees would no longer be able to take the “lump sum payment” – i.e. a one-time payment on retirement with a reduced pension.
The state teachers union bosses – the PSEA and AFT-PA – have come out in support of the plan. This may surprise some, given than their rhetoric over the past several months has been that the cause of the pension crisis was deferring payments (hence their “keep the promise campaign”) and a reduction in benefits would mean they can’t attract teachers. This after years of denying their was any pension crisis at all. Yet the bill they are now supporting cuts benefits for new hires and defers payments.
Moreover, the unions continue to oppose moving to a defined-contribution plan, like a 401k – even though such a switch need not mean lower retirement benefits. Ample research has shown that a 401k can provide as much retirement income as traditional pensions. So why are public sector unions supporting a cut in benefits and deferment of payments instead?
Simply put, lobbying. The major problem with defined benefit plans is that they are subject to political manipulation – such as delay payments and changing benefits. A defined contribution plan/401k removes politics from the equation. So the union lobbyists are not so much working for the interests of teachers, but for the interests of union lobbyists, because with a defined contribution plan, there really is little need for union lobbyists.
Moreover, union lobbyists must realize that in a few years, all the new employees will realize they are getting less in pension benefits than older employees – even though they are paying the same amount into the system – and demand a pension benefit increase. This creates more work for union lobbyists.
For more facts on Pennsylvania’s public sector pension crisis visit comfdnprod.wpengine.com/pensions.