The rhetoric surrounding public service and actual compensation for public service are two different stories. Average total compensation (salary and benefits) for a Pennsylvania state employee is $104,506. That’s up almost $2,000 from the prior year. For a private sector worker, the average compensation is $69,336.
The difference equals roughly $35,000 more for the average public employee than an employee in the private sector. Almost $25,000 of this difference stems from public benefits, with pensions being the largest contributor and totaling $18,533 a year. In 2019, benefits amounted to almost 80% of salary.
One way to stabilize the dramatic growth in benefits is pension reform. In 2017, state lawmakers in Pennsylvania took necessary steps to begin protecting taxpayers from another pension crisis. That was after the $20 billion pension surplus in 2001 turned into a $61 billion deficit by 2015. This turn around—a result of underperforming investments and low contributions—fell squarely on taxpayers’ shoulders.
The signing of Act 5, moved new employees to either a defined contribution1 or one of two hybrid2 defined-contribution and defined-benefit3 retirement options. This limited the risk to taxpayers. However, the two hybrid options, which are the most popular selection for new employees, still put taxpayers at risk for making up any shortfall between defined-benefit promises and available pension funds. Moving public employees entirely to defined contribution plans—like you find in the private sector, would end once and for all the politics in our pension system, and allow state workers to take control of their own retirement through more mobility and flexibility.
“The biggest problem isn’t that some state employees make a good salary,” argues my colleague Nathan Benefield, COO of the Commonwealth Foundation. “The problem is those salaries and raises seem unconnected to performance, aren’t tied to merit, come with unaffordable and unsustainable benefit plans.”Pension reform addresses this problem, by ensuring that the prosperity of public workers doesn’t unfairly burden everyone else.