Will New Proposal Kick Start Pension Reform?

For Immediate Release
Commonwealth Foundation
Contact: Cindy Hamill
(856) 607-4208

Will New Proposal Kick Start Pension Reform?
Steps Needed Now Toward Pension Overhaul

June 16, 2014, Harrisburg, Pa—Lawmakers on both sides of the aisle indicate a willingness to change their own pensions first, as suggested by Senate President Pro Tempore Joe Scarnati in an effort to kick start pension reform. It is a gesture by many lawmakers to bring attention to the seriousness of the issue and get fellow lawmakers to bring proposed legislation to a vote.

This week the Pennsylvania House of Representatives is expected to consider an amendment by Rep. Mike Tobash to create a "hybrid" retirement plan for new state employees and school teachers.

The Commonwealth Foundation applauds Rep. Tobash’s efforts to address the impending pension crisis. Absent reform, pension contributions will continue to soar, consuming more of our state budget while requiring property tax increases or teacher layoffs at the school district level.

State pension costs will more than double over the next three years, crowding out funding available for education, transportation, or other programs. School districts face similar increases in pension costs—an amount equal to the salaries of 33,000 teachers, nearly one of every three Pennsylvania educators. Standard & Poor’s recently warned that it would lower the state’s bond rating—making it more expensive to borrow money—unless lawmakers "adopt meaningful pension reform."

Several government unions, including the Pennsylvania State Education Association, have stood in opposition to any meaningful pension reform for years—even as the system accumulated $50 billion in unfunded liabilities.

It is clear that Pennsylvania cannot afford to do nothing about the pension crisis. The Commonwealth Foundation also urges lawmakers to work for stronger reforms, most importantly, creating a 401(k) for new hires.

A 401(k)-style plan will fully end the political manipulation which created the current pension crisis, while providing benefits that are affordable for taxpayers, predictable for school districts, and paid for while workers are still employed. A recent study released by the Commonwealth Foundation also shows how 401(k)-style plans benefit workers.

A hybrid plan, while providing savings in long-term costs to taxpayers, maintains additional risks. Specifically, it relies on assumptions about the rate of market returns and workers’ behavior, while encouraging employee benefit increases and deficits that can be pushed off onto future generations.

As lawmakers debate a great many issues surrounding the state budget, there can be no dispute that Pennsylvania families and workers need pension reform.
Commonwealth Foundation experts are available for comment on the latest developments in state pension reform.

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For more information, please contact Cindy Hamill, director of strategic communications for the Commonwealth Foundation at (856) 607-4208 or [email protected].

The Commonwealth Foundation, founded in 1988, crafts free-market policies, convinces Pennsylvanians of their benefits, and counters attacks on liberty.