Pension Primer #1: Digging a Deeper Pension Hole
Transitioning to Defined Contribution Plan Brings Higher Pension Debt and Taxpayer Costs
Keystone Pension Primers: As Pennsylvania policymakers, media, and citizens evaluate Governor Tom Corbett’s pension proposal unveiled February 5, 2013, the Keystone Research Center will release a series of short “pension primers” to demystify the often complex details at the heart of the pension debate. This is the first installment in that series.
Governor Tom Corbett has proposed a major restructuring of Pennsylvania’s retirement system for new employees from a system that provides a defined benefit (based on employees’ salaries and years of service) to a 401(k)-type plan that defines only the amount contributed each year by employer and employee. This pension primer shows that the Governor’s proposal will increase the cost of pensions for the state and school employers—and ultimately taxpayers.
Proponents of the new plan argue that it is necessary to reduce the $41 billion in additional funds required to meet pension obligations already incurred by the current pension systems. However, the Governor’s proposal would increase, rather than decrease, Pennsylvania’s unfunded pension liabilities.