SAN JOSE, Calif., June 20, 2016–The Retirement Security Initiative (RSI) today urged Pennsylvania Senate members to reject the stacked hybrid pension proposal recently passed by the Pennsylvania House and instead replace it with side-by-side hybrid pension reform as outlined in the original SB 1071.
In a letter to Senators Patrick Browne (PA-16), Jake Corman (PA-34) and Joe Scarnati (PA-25), RSI said that it has serious reservations about SB 1071 as amended by the House to include a stacked hybrid approach. While the House bill is projected to save taxpayers an estimated $5 billion over the next 30 years, that is only a little more than 2 percent of the total projected $240 billion taxpayers’ 30-year cost for the state’s two public pensions: the Pennsylvania State Employees’ Retirement System and the Public School Employees’ Retirement System.
“While we appreciate the bi-partisan nature of the reform, the House’s stacked hybrid does not go far enough to mitigate the risk of future unfunded pension liabilities,” wrote RSI Executive Director Pete Constant. “It is unnecessarily complex, and perhaps most importantly, is such that future legislation could easily unwind this much needed reform.”
For employees hired after 2018, the House proposal would start them on a defined-benefit plan that would convert to a 403(b) defined contribution plan, which is funded similar to a 401(k) plan, for any income earned over $50,000-per-year, and for all income after 25 years of employment. The state would contribute a 4 percent match.
Whereas, the original Senate reform, passed last year, would cut the current defined benefit formula for workers hired after 2011 and pair it with a mandatory 403(b)-style plan, in which the state would contribute 2.5 percent of an employees’ pay. According to RSI, the Senate plan does a better job of cutting taxpayers' risk since the House plan keeps more employees in a guaranteed defined benefit plan for a longer amount of time.
“The side-by-side hybrid structure is a significant policy achievement, one that will help Pennsylvania meet its existing retirement commitments to public employees and begin to address its substantial unfunded pension liabilities, while providing a new retirement structure that is both more sustainable and provides adequate retirement security for new workers,” wrote Constant.
The Senate plan “will help move Pennsylvania toward a healthier, sustainable financial future,” continued Constant. “It is far superior to the House’s stacked hybrid plan.”
To read the letter in its entirety, click here.