Pension Primer #7 - A $40 Billion Dollar Oversight: Actuarial Studies Document High Cost of Governor’s Pension Plan
This week, the Senate Finance Committee expects to consider legislation that includes part of Governor Tom Corbett’s proposed restructuring of Pennsylvania’s public employee retirement plans. One element of the Governor’s plan is his proposal to switch future teachers, emergency responders, nurses, and other school and state employees from the state’s current defined benefit pension system to 401(k)-type individual retirement accounts.
In our first pension primer and in other reports, the Keystone Research Center has pointed out that closing the state’s defined benefit pension plans would carry large costs because it would reduce the investment returns on the assets of Pennsylvania’s two existing pension funds as they wind down. If investment returns pay for less of existing pension obligations, taxpayers have to pick up the tab. Now Pennsylvania’s two retirement systems have released models—or actuarial studies—detailing the fiscal impact of the Governor’s proposal. These studies show that closing the state’s defined benefit pension plans would indeed have high costs, digging a much deeper pension hole than under the status quo.
In May, the Hay Group released a projection to 2050 of the impact of the Governor’s proposal on the State Employees’ Retirement System (SERS). Just last week, Buck Consultants released a projection to 2046 of the impact of the Governor’s plan on the Pennsylvania School Employees’ Retirement System (PSERS). (An earlier 30-year projection by Buck had noted, but not modeled, the potential of the Governor’s plan to erode future investment returns on plan assets.) Taken together, the Hay study and the latest Buck study project cost increases as a result of the Governor’s plan that total $50.8 billion. Most of these losses result from the following three impacts.
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).
Media Conference Call: The call featured KRC Executive Director Stephen Herzenberg, Pennsylvania Treasurer Rob McCord, state Senator John Blake, and National Institute on Retirement Security Executive Director Diane Oakley. Download audio or listen in the player below.