Pennsylvania Pension Facts: Beware of False Reforms
KRC Pension Primers: As policymakers, members of the media, and citizens evaluate pension proposals, the Keystone Research Center’s “pension primers” seek to demystify the often-complex details of the pension debate. This is the pension primer #11 March 13, 2015
With budget season in full swing, some Pennsylvania lawmakers are dusting off plans to eliminate the state's secure public pension system and shift new state and school employees into 401(k)-style retirement accounts. Rep. Warren Kampf, R-Chester/Montgomery, is sponsoring one such proposal.
Readers who have been following the Pennsylvania debate over the past few years may react to this news by saying, “Wait a minute, haven’t we been down this road before?” And well they might.
Switching all new public employees to individual defined contribution savings accounts is what former Gov. Tom Corbett proposed in 2013. As a result, the Kampf and similar proposals have already been the subject of close – and recent – scrutiny by pension experts. It therefore makes sense to start the discussion of proposals to switch new employees to 401(k)-style plans with a simple step: reminding ourselves what we already know about the consequences of such a switch from research done two years ago.
Based on the still-fresh research on switching new Pennsylvania public employees into individual defined contribution savings plans that was done in response to Gov. Corbett’s proposal, we know that this switch would:
- add billions in pension costs for taxpayers,
- make no progress on the existing pension debt and achieve no savings for the budget this year or in any year,
- switch new employees to a less efficient type of pension (with higher costs and lower returns than the existing pension plans), and
- threaten the retirement security of teachers, nurses, emergency responders, and other public servants.
The rest of this primer briefly elaborates on these points and provides sources where media, lawmakers, and members of the public can find whatever level of detail they want on the impact of closing the existing defined benefit plans and why it is a demonstrably bad idea for taxpayers, public employees, and public employers.