Yesterday, the Senate Finance Committee approved SB 1, a critical overhaul of Pennsylvania’s troubled public pension system. The bill offers new public workers a side-by-side hybrid pension option that pairs a 401(k)-component with a smaller defined benefit component. Crucially, SB 1 also gives new and current employees the option to enroll in a 401(k)-only plan.
“We applaud the senators who advanced significant pension reform that would provide more options for workers and protect taxpayers from future risk,” commented Nathan Benefield, vice president and COO for the Commonwealth Foundation. “For years, our failing public pension system has driven property tax increases and sapped more and more from education funding. SB 1 would give public employees far more control over their own retirements, begin to protect retirement funding from political maneuvering, and shift risk away from taxpayers.”
The pension problem is undeniable. Rising pension payments are squeezing school district budgets and causing property taxes to skyrocket across the state. From 2009 to 2015, school district revenue increased by $3.9 billion. Yet 47 percent of that increase went to pension payments—equaling a $578 increase per homeowner or the average salary of almost 29,000 teachers.
Now $63 billion in debt, the state’s two pension systems hold enough assets to cover just 60 percent of liabilities. Only four states have worse funding ratios, according to an analysis by the Tax Foundation.
Last October, The Pew Charitable Trusts evaluated a hybrid pension proposal similar to SB 1, saying it “would mitigate more risk than any state that has enacted pension reform while maintaining or improving retirement security for workers.”
“Unless action is taken, we risk being unable to keep the promises made to public workers,” continued Benefield. “We owe it to workers and taxpayers to set Pennsylvania back on a sustainable course.”
SB 1 now moves to the Senate Appropriations Committee. Last October, a similar plan failed to reach a vote in the legislature after fierce opposition from government union leaders.
Nathan Benefield and other Commonwealth Foundation experts are available for comment. Please contact Gina Diorio at 862-703-6670 or [email protected] to schedule an interview.
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