Pennsylvania's Pension Plans in Need of Reform


By Todd Lucas

As is the case with numerous pension plans these days, two Pennsylvania public pension plans are significantly underfunded. The pension plans for state employees and public school workers have an unfunded liability of $41 billion with pension costs expected to increase in future years.

The current unfunded liability equates to more than $8,000 per Pennsylvania household. How the state arrived in this situation isn’t nearly as important as it is planning on getting out of this situation. Without resolution to the pension crisis, the Commonwealth of Pennsylvania, its business and taxpayers will all be impacted in the form of increased costs to taxpayers, slowed new business growth and a potential downgrade in the Commonwealth’s credit rating.

The recently released Keystone Pension Report, whose primary purpose is to provide financial facts, highlight key issues and further dialogue on pension reform, outlines framework for a solution, which includes creating a plan that would enroll all new state workers in 401(k)-style plans, increasing the retirement age by two to three years; changing how the basic pension formula is calculated; eliminating overtime pay in pension calculations; and capping the retirement benefit.

Former public and school district employees are not expected to be affected by any of the changes. Additionally, accrued retirement benefits of current employees should not be touched.
In 2012, eight states, including Kansas, Louisiana and Virginia among others, have already made major structural changes to their state retirement plans.

The Corbett administration along with the General Assembly and the pension systems will work together over the few months in hopes of developing a long-term approach that will bring sustainability and affordability to the pension system.

While no timetable has been given, it is vital to all parties involved that reform happens sooner rather than later. Look for additional Insights as discussions progress.

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