Pennsylvania Has Modest Public Pension Benefits

Authors: 
Ellis Wazeter
Authors: 
Stephen Herzenberg
Publication Date: 
June 29, 2015

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Retirement benefits for Pennsylvania public sector workers are among the least generous of all large public sector pension plans in the country. Benefits provided by Pennsylvania’s pension plans for state workers and for public school employees rank 77th and 89th,respectively, among the country’s 100 largest plans (measured by pension plan assets).

Pension benefits in Pennsylvania average about $25,000 to $26,000 per year. The average yearly benefit paid by the Pennsylvania State Employees’ Retirement Systems (SERS) is $25,839, and the average yearly benefit paid by the Pennsylvania Public School Employees’ Retirement System (PSERS) is $24,962.[1] Comparing pension benefits across different plans cannot be done simply by comparing average benefits for each plan because comparable information is not readily available and  the profiles of each plan’s retirees (age, years-of-service, and years-since-retirement) are different. To rank the benefits provided by PSERS and SERS, therefore, we measured three key dimensions of public pensions: whether the plans offer inflation protection to retirees, how benefits are calculated, and the amount employees contribute to their own retirement plans. (For the full methodology, see Appendix A).

Here’s how Pennsylvania gets its low ranking for benefits provided:

  • Pennsylvania retirees have no automatic protection against inflation. While 69 of the 100 largest plans offer retirees some automatic inflation protection, Pennsylvania pension plans provide no such protection.
  • Pennsylvania school employees pay more into the system than workers in most other systems. PSERS requires employees to contribute 7.5 percent, which is more than employees contribute in about two-thirds of the top 100 plans. SERS requires employees to contribute 6.25 percent of their salaries to their own pensions, more than 50 other plans in the top 100. 
  • Pennsylvania’s multiplier is in the middle-of-the-pack. The percentage by which Pennsylvania increases state pensions per year of service – known as the multiplier – is in the middle of the pack nationally, at 2 percent. With this multiplier, pension benefits increase by 2 percent of final average salary for each additional year of service. Pennsylvania lowered the multiplier from 2.5 percent to 2 percent in 2010. (Twenty other state pension plans, in addition to Pennsylvania’s two, have a multiplier of 2 percent).

Despite the modest level of  retirement benefits from Pennsylvania’s public sector pensions, some observers claim that these pensions are outsized. For example, state Sen. Scott Wagner recently claimed that there are “huge disparities” between benefits of public workers (including, but not limited to, pension benefits) as compared to private workers. The York Daily Record found it did not have enough information to fact-check Sen. Wagner’s claim and called for a more comprehensive study.[2] In fact, a careful study of public vs. private compensation in Pennsylvania has already been done. That study found that benefits are higher for public sector workers – but overall compensation is lower because public sector wages are below those of comparable private sector workers by a larger amount. As a result, total annual compensation is 5.4 percent lower for public employees than for comparable private employees (with similar levels of education and other characteristics).[3] The study also found a particularly large (21 percent gap between the salaries of college-educated public-sector workers – who make up more than half of Pennsylvania’s full-time public-sector workers compared to only one-third of full-time private workers – and their private counterparts. The “huge disparity” in salaries between the public and private sectors is one reason you rarely here the phrase “I’m leaving the private sector to go and make more money.”

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[1] These average benefit figures are taken from the most recent comprehensive annual financial report of each of the Pennsylvania pension systems. They are not directly comparable because SERS only includes members who work to full retirement age, excluding anyone who has taken an early retirement, a disability retirement, or who receives survivor benefits. PSERS includes all of these groups, which brings down the average compared to just looking at people who work to full retirement age. SERS Staff, Comprehensive Annual Financial Report for the Year Ended December 31, 2013, SERS, http://www.sers.pa.gov/pdf/CAFR/2013-CAFR-Full-Web.pdf: page 91;

PSERS Staff, Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2014, PSERS, http://www.psers.state.pa.us/content/publications/financial/cafr/cafr14/Combined%202014%20CAFR.pdf: page 6.

[2] The paper decided it could not determine the accuracy of Wagner’s claim “…because there appear to be too many assumptions and apples-to-oranges comparisons in Sen. Wagner's statements.” The paper then noted “…we'd like to see a more comprehensive study before weighing in…” See Flint McColgan, “Pa. Fact Finder: Is Sen. Scott Wagner right about public workers' high benefits?” York Daily Record, Jun 15, 2015; online at http://www.witf.org/news/2015/06/pa-fact-finder-is-sen-scott-wagner-right-about-public-workers-high-benefits.php

[3] Find the full study here: Jeffrey H. Keefe, Public Versus Private Pension Costs in Pennsylvania, Economic Policy Institute, http://keystoneresearch.org/sites/keystoneresearch.org/files/EPIBriefingPaper313.pdf