Yesterday, Elizabeth wrote about the reasons we need pension reform now. As the full Senate prepares to vote on SB 1, I wanted to provide some clarity on this reform.
The goal of SB 1 is both clear and critical: to reduce taxpayers risk, and move to a system with less ability for political manipulation.
According to the IFO report on SB 1:
- The new plans reduce risk by 53% for PSERS and 58% for SERS. The shared risk provisions reduce taxpayer risk by another 11% and 8%, respectively. That’s to say, this reform reduces taxpayer risk by about two-thirds (64% & 66%).
- In dollar amounts: if the plans earn 5.25% instead of the estimated 7.25% returns, these reforms would save another $13 billion (pg 15-16) over 30 years.
The unfunded liability still remains and must be addressed separately. But SB 1 is forward-looking. If we had adopted these reforms 20 years ago—instead of increasing pension benefits, pushing costs of on future generations, and assuming unrealistic stock market returns—our unfunded liability would be dramatically lower today.
SB 1 is a significant first step in the right direction to reduce taxpayer risk and the political manipulation of pension benefits and payments. Critically, this bill also creates a model for future reforms.
Our pension crisis has ballooned exponentially specifically because of inaction. The status quo has not worked—nor will it. SB 1 begins to address our unsustainable pension system, laying the groundwork for future reform.