The Senate passed an aggressive pension plan last week (5/13/15) to modernize the state’s public employee pension systems. The bill is a historic plan that reflects the seriousness of the situation we face with pensions.
The state’s pension obligations are staggering. This year alone, we face a $1 billion increase in our pension contribution. The growth of the mandated spending is beyond our means. Our revenues are not expected to keep up with the amount we are required to spend. The pension crisis we are experiencing cannot be overstated.
Without modification, the viability of the state pension systems are in question. Our pension costs, which currently crowd out worthy budgetary contributions and investments such as funding for school districts and economic development, will more than double over the next 20 years.
This is not a new issue. The Senate has held numerous hearings over the last two years with a critical eye toward fixing the pension systems. Those hearings have taught us a lot, bringing us to the bill we passed this week that partners with state employees and public school teachers in order to stabilize and sustain the systems.
The Senate took action to restructure the state’s two public employee pension systems – the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS) in order to make the state retirement systems viable in the long term. This bill does not reduce in any way or make any changes to benefits already earned or paid into the systems by current employees or teachers. Nor does it impact current retirees.
We have provided a fix for the system, not a Band-Aid. The Senate-approved plan is projected to produce $18.3 billion in savings over 30 years, according to an evaluation provided today by the state’s Public Employees Retirement Commission. Under this evaluation, Senate Bill 1 provides seven times more savings for the Commonwealth and school districts than the Governor’s proposal, which would increase the state’s debt by $3 billion.
The savings reflect the tangible, structural improvements to the pension systems for current and future employees achieved in this legislation. Instead of borrowing money to pay down a debt, like paying your mortgage with a credit card, Senate Bill 1 creates meaningful savings by restructuring the systems while reducing liabilities and preserving current employee retirement benefits.
Senate Bill 1 asks employees to make contributions in exchange for pension sustainability and new benefits. Employees will see those increased contributions returned to them upon retirement.
The argument is made that it was the actions of the General Assembly and previous Governors that caused many of the issues with pensions. It should be noted that those actions were supported by public-sector unions and others in the systems.
Senate Bill 1 removes the General Assembly and others from the business of making decisions on these issues and betting on Wall Street. It shields employee and teacher benefits from future political risk.
Senate Bill 1 provides choices for state employees and teachers – both current and future – to create a pension system that they can tailor to suit their needs. This plans allows them to benefit when the systems are exceeding investment expectations, yet shields employees and teachers when they falls short.
Lawmakers also are leading by example. Just like public employees and teachers, we have the option to contribute more to keep the current pension benefit. In addition, lawmakers will be moved into the 401(k)-style plan upon reelection – the same plan as a new employee. Lawmakers are the only current employees moving to this kind of program.
In the coming weeks, the state House will add its voice to the efforts to restructure and modernize the state pension systems. Senate Bill 1 is the most responsible approach for the people of Pennsylvania and will be the most significant public policy achievement of our time. It builds on our successful policy efforts over the years that have strengthened the state’s economy, which has an unemployment that is lower than the national average.
Fighting to save the status quo will not address the problems with the pension system. The time is now to continue moving forward with this broad plan to address the current pension emergency that has severely impacted the Commonwealth and school districts.