Pennsylvania Pensions

Latest KRC Pension Primer

Pension Primer #10
Corbett Pension Plan Does Not Equal Property Tax Relief: What the Pension Experts Say

Pension Primer #9
Moving Backwards on Pension Reform Tobash Plan Does Little to Reduce Pension Debt But Will Erode Quality of Public Schools and Services, Hurt Retirement Security.


Public Pension in Pennsylvania

Pennsylvania’s policymakers are currently debating changes to pensions for public school employees and state workers. 

How We Got Here

As the Corbett administration’s pension report notes, the ingredients of the current pension challenges facing Pennsylvania include “short sighted” political decisions that led to “nearly a decade of underfunding by state governments and local school districts,” and “investment returns that failed to meet expectations” as a result of one of the stock market’s “most volatile periods in recorded history." As a result, Pennsylvania's public pension plans have $47 billion in unfunded future costs.

What Has Been Done So Far

The General Assembly enacted the Pension Reform Act in 2010, curbing rising pension costs. The Act’s reforms included:

  • Reducing pension benefits for new employees by over 20%;
  • Increasing the retirement age to 65 for new employees, extending the period for employees’ benefits to vest from 5 to 10 years, and eliminating the lump-sum withdrawal of their contributions at retirement; and
  • Implementing an innovative “shared risk” provision for new employees that increases employee contributions if  actual investment returns fall below assumed returns.
The law also established a plan for increasing employer contributions to gradually restore the state and school pension plans to full funding.

The Pension Reform Act lowered the cost to the state and schools of pension plans for new employees to 3% of salaries. It would be difficult for any alternative pension plan for new employees to beat this low cost.

Key Facts About the Governor's Proposal

Governor Corbett’s pension proposal, unveiled in February 2013, would undo much of the progress made with the Pension Reform Act of 2010 and represents a step backwards. 

The plan lowers state contributions to pensions for the next five years, reduces benefits earned by current workers in the future, and enrolls future employees in a 401(k)-type defined contribution plan, among other changes.

Below are key facts about the Governor’s proposal and about Pennsylvania pensions more broadly. More detailed Pension Primers can be found here.

  • The Governor’s proposal would increase Pennsylvania’s pension debt (or “unfunded liability”)-by an estimated $40 billion according to actuaries.
    • Closing the state’s current pension plans to new workers also increases the pension debt—as those left in the plans grow older and retire, fund managers will invest in less risky and more liquid assets, lowering returns and requiring more contributions to meet pension obligations.
       
  • The Governor’s pension proposal would increase the cost of pensions for new employees above the low levels (less than 4% of salaries) achieved in the 2010 Pension Reform Act. 
     
  • The Governor’s proposal does not make the responsible contributions to pensions required by the 2010 Pension Reform Act. Diverting pension contributions repeats the short-sighted political decisions that helped create the current pension debt in the first place.
     
  • The Governor’s proposal to cut current workers’ pensions risks court reversal for violation of a constitutionally protected contract. It leaves the state uncertain of pension costs for years and then with potentially higher pension debt.
     
  • Pennsylvania's pension debt is not the responsibility of Pennsylvania employees, who have contributed about 7% on average of every single paycheck to their own pensions. In the 2000s, Pennsylvania employees contributed nearly twice as much to their own pensions as their employers, whereas in most other states employers pay nearly twice as much as employees. Even with good benefits, public workers earn lower wages plus benefits than equivalent private-sector workers.
     
  • The Pension Reform Act of 2010 reduced pensions for future employees by more than 20% and protects taxpayers by requiring even higher employee pension contributions if financial markets plummet.
     
  • Corporate tax breaks have a bigger impact on the state budget than pensions. The annual taxpayer cost of funding the retirement benefits of current Pennsylvania employees is only 36% of the cost to the state of economic development subsidies and corporate tax breaks and loopholes. Pension debt is a small share of total state funding over the decades the state has to pay it off. 

Where Do We Go From Here?


Three other pension proposals have been put forward since the Governor's 2013 defined contribution plan.

  • Representative Grell's three-pronged proposal included the use of bonds to buy down Pennsylvania's pension debt. His plan would also switch new employees into a "cash balance" pension plan with lower pension benefits and likely lower investment returns, increasing taxpayer costs. Read about KRC's analysis of the Grell plan here.
     
  • Representative Tobash's hybrid pension proposal would reduce retirement benefits by even more, without significant savings. Read about KRC's analysis of the Tobash plan here.

  • Senate Democrats have also introduced a pension proposal that, similar to Representative Grell's, includes pension bonds and that also includes some pension savings. The end of KRC's most recent brief compares all of the pension proposals advanced since 2013 (the Governor's, Rep. Grell's, Rep. Tobash's, and the Senate Democratic proposal) and advances KRC's own framework for reform. Read KRC's comparative analysis and reform framework at the end of this brief. 

Learn More

Download a PDF Version of KRC's Key Pension Facts

Digging a Deeper Hole: 10 Reasons Gov. Corbett’s Pension Plan Will Cost Taxpayers More

Memo: Switching to 401(k)-type Retirement Plans for New Employees Will Harm PA Taxpayers

Actuarial Studies

Actuarial Studies on SB 922: This document from the Public Employee Retirement Commission (PERC) details the impact of Senate Bill Number 922 on the State Employees' Retirement System (SERS) and the Public School Employees' Retirement System (PSERS).

View Advisory Note for House Bill No. 1350, P.N. 1760, May 31, 2013: This document from the Public Employee Retirement Commission (PERC) details the impact of the Governor's pension proposal on the State Employees' Retirement System (SERS) and the Public School Employees' Retirement System (PSERS). It includes the findings of the actuarial studies done by the Hay Group for SERS and Buck Consultants for PSERS.

View Addendum to Advisory Note, June 11, 2013: This document includes Buck Consultants' projection to 2046 of the impact of the Governor’s plan on PSERS (not included in the May 2013 letter).


Keystone Pension Primers

Pension Primers #1 and #2
Governor’s Pension Plan Will Cost the State and Taxpayers More

Read Pension Primer #1

Read Pension Primer #2

Read a Press Release on Pension Primers #1 and #2 released on February 26, 2013.

Pension Primer #3
2010 Pension Reform Achieved Significant Long-Term Savings

Read Pension Primer #3

Read a Press Release on Pension Primer #3 released March 5, 2013.

Pension Primer #4
Governor’s Proposal Delays Public Pension Payments, Repeating Short-Sighted Practices That Drove Up Pension Debt

Read Pension Primer #4

Read a Press Release on Pension Primer #4 released April 16, 2013

Pension Primer #5
Pennsylvania Pensionomics: Public Pensions Fuel Economic Activity Across Pa.

Read Pension Primer #5

Read the Press Release on Pension Primer #5 released June 6, 2013

Pension Primer #6 and #7
Less Bang for Pennsylvania’s Buck: Governor’s Pension Proposal Would Force Taxpayers (and Employees) to Foot the Bill for Retirement Plans with High Fees, Low Returns

Read Pension Primer #6

A $40 Billion Oversight: Actuarial Studies Document High Cost of Governor’s Pension Plan

Read Pension Primer #7

Read the Press Release on Pension Primer #6 and #7 released June 18, 2013

Pension Primer #8
Cash Balance Pension Plan Could Hurt Public Employees and Taxpayers

Read Pension Primer #8

Read the Press Release on Pension Primer #8 released October 1, 2013

Pension Primer #9
Moving Backwards on Pension Reform Tobash Plan Does Little to Reduce Pension Debt But Will Erode Quality of Public Schools and Services, Hurt Retirement Security

Read Pension Primer #9

Read the Press Release on Pension Primer #9 released June 2, 2014

Pension Primer #10
Corbett Pension Plan Does Not Equal Property Tax Relief: What the Pension Experts Say

Read Pension Primer #10

Read the Press Release on Pension Primer #10 released July 17, 2014

Actuarial Studies

Actuarial Studies on SB 922: This document from the Public Employee Retirement Commission (PERC) details the impact of Senate Bill Number 922 on the State Employees' Retirement System (SERS) and the Public School Employees' Retirement System (PSERS).

View Advisory Note for House Bill No. 1350, P.N. 1760, May 31, 2013: This document from the Public Employee Retirement Commission (PERC) details the impact of the Governor's pension proposal on the State Employees' Retirement System (SERS) and the Public School Employees' Retirement System (PSERS). It includes the findings of the actuarial studies done by the Hay Group for SERS and Buck Consultants for PSERS.

View Addendum to Advisory Note, June 11, 2013: This document includes Buck Consultants' projection to 2046 of the impact of the Governor’s plan on PSERS (not included in the May 2013 letter).

Pension Primers & Analyses

KEY PENSION FACTS

Key Facts About Pennsylvania Pensions

Talking Points on Corbett 401(k)-Type Saving Accounts

Talking Points on Corbett-Tobash Plan

Ten Reasons Governor Corbett’s Pension Plan Will Cost Taxpayers More

Good Jobs First | Putting State Pension Costs in Context: Pennsylvania

Actuarial Studies on SB 922 (Senate version of Corbett 401(k)-type plan)

Actuarial Studies on HB 1350 (House version of Corbett 401(k)-type plan)

KEYSTONE PENSION PRIMERS

Pension Primer #1
Digging a Deeper Pension Hole: Transitioning to Defined Contribution Plan Brings Higher Pension Debt and Taxpayer Costs
February 26, 2013

Pension Primer #2
Paying More For Less: Cost of New Employee Pensions Will Rise with Defined Contribution Plan, Undoing 2010 Savings for Taxpayers
February 26, 2013

Pension Primer #3
Long-term Savings in 2010 Pension Reform Law Hard to Beat
March 5, 2013

Pension Primer #4
Governor’s Proposal Delays Public Pension Payments, Repeating Short-Sighted Practices That Drove Up Pension Debt
April 16, 2013

Pension Primer #5
Pennsylvania Pensionomics: Public Pensions Fuel Economic Activity
June 6, 2013 

Pension Primer #6
Less Bang for Pennsylvania’s Buck: Governor’s Pension Proposal Would Force Taxpayers (and Employees) to Foot the Bill for Retirement Plans with High Fees, Low Returns
June 18, 2013

Pension Primer #7
A $40 Billion Oversight: Actuarial Studies Document High Cost of Governor’s Pension Plan
June 18, 2013

Pension Primer #8
Cash Balance Pension Plan Could Hurt Public Employees and Taxpayers
October 1, 2013

Pension Primer #9
Moving Backwards on Pension Reform Tobash Plan Does Little to Reduce Pension Debt But Will Erode Quality of Public Schools and Services, Hurt Retirement Security.
June 2, 2014

Pension Primer #10
Corbett Pension Plan Does Not Equal Property Tax Relief: What the Pension Experts Say.
July 17, 2014

OTHER RESOURCES

Memo to General Assembly
Public Employee Retirement Commission Confirms High Cost to Taxpayers of Closing Pa.'s Defined Benefit Pensions
June 26, 2013

Review of Articles
Retirement Gamble: The Problem with 401(K) Plans
June 26, 2013

Memo to Senate Finance Committee
Switching to 401(k)-type Retirement Plans for New Employees Will Harm PA Taxpayers
June 12, 2013

Pension PowerPoint Presentations
The Corbett Administration Pension Proposal
Stephen Herzenberg
March 13, 2013  

Pension Plan Overview
Governor Corbett’s Pension Plan a Step Backwards
February 7, 2013 

Pension Media Memo
Questions to Ask on Pensions & State Budget
February 4, 2013 

Media Coverage

Central Penn Business Journal: Corbett pension reforms would cost $50B+
June 19, 2013

Fox 43: Study says local economy could suffer from pension reform
June 13, 2013

Public News Service: Pensions Pump Up Local Economies in PA
June 12, 2013

Central Penn Business Journal: Pa. pension payments means $13.2B in economic activity
June 7, 2013 

WESA-FM: Keystone Research Says Corbett's Pension Plan Costly to Local Economies
June 6, 2013

PennLive/Patriot-News Pension Forum with Stephen Herzenberg
June 5, 2013 

Philadelphia Inquirer Commentary: Gov. Corbett's Pension Plan Will Be Costly
By Stephen Herzenberg
May 20, 2013

Michael Crossey in Erie Times-News: Corbett's pension plan will cost more 
May 17, 2013

Frank Snyder in Allentown Morning Call: Gov. Corbett’s pension math doesn't add up
April 30, 2013

Scranton Times-Tribune: Reform needed before pensions can be changed, advocates say
April 11, 2013

PA Independent: Unions promise challenges to PA pension reform
March 27, 2013

WITF-FM: Trading barbs, legal theories on pension overhaul
March 27, 2013

Scranton Times-Tribune: Aging baby boomers face discouraging financial future
March 18, 2013

Associated Press: Corbett plan would cut Pa. pensions by $12 billion
February 27, 2013

Scranton Times-Tribune: PA treasurer says Governor's pension reform digs deeper hole
February 27, 2013

Reading Eagle: Corbett's pension plan would worsen crisis, state treasurer says
February 27, 2013

Calkins Media: Treasurer McCord, think tank rip Corbett pension reform plan
February 27, 2013

Pittsburgh Post-Gazette: Pa. treasurer disputes purported savings in Corbett's pension overhaul
February 27, 2013

Lancaster Newspapers: Pa. Treasurer blasts Corbett pension reform plan
February 26, 2013

Older Pension Resources