House Pension Compromise Is Step in Right Direction

The pension reform bill is quickly making its way through the Pa. House. The latest iteration, SB 1071, mirrors the Senate's version (SB 1082; read our summary here), but has several key differences.

First, it drops collars by restoring the state contribution. Collars could add about $500 million to taxpayers’ pension liability. Second, it reinstates the requirement for an actuarial note, or estimate of the bill’s cost.

The House version also changes how current employees can participate in the new system. Under the Senate plan, current lawmakers would be put into the new system after their next election, but they could opt out. No other current workers could participate in the new system. 

Under the House language, any current employee, including lawmakers, can opt into the new system.

As we've noted before, this pension reform bill fails to fully remove politics from pensions, but takes an important step in that direction. Under a hybrid system, only the defined benefit component would be subject to political manipulation.

Here's a quick summary of the current pension reform proposal:

• A side-by-side hybrid, with a smaller defined benefit pension and a defined contribution component.
• Changes apply to PSERS employees in 2017 and SERS employees in 2018.
• An anti-spiking provision to end the practice of excessive overtime at the end of one's career to dramatically increase pension payments.
• Changes to the lump sum payment option to ensure taxpayer costs will not increase if an employee chooses to receive benefits in a lump sum.
• A risk sharing provision to reduce, but not eliminate, risk for taxpayers due to investment losses.