Harrisburg – The Senate approved a historic pension reform bill yesterday that will transform public employee retirement benefits for the 21st Century and limit future financial risks for taxpayers, according to Senator Bob Mensch (R-24).
Senate Bill 1 is projected to save more than $5 billion and shield taxpayers from $20 billion or more in additional liabilities if state investments fail to meet projections. In addition, the bill creates a new Pension Management and Asset Investment Review Commission to study ways to reduce investment costs with the goal of saving an additional $3 billion.
Pension benefits already earned by current employees and retirees would not be affected.
The legislation would offer all new public-sector employees one of three different retirement planning options – a defined contribution plan similar to the 401(k) system offered by most employers in the private sector, or one of two hybrid plans that combine a 401(k) style system with the defined benefit system that state employees and school employees already enjoy.
The new system would only apply to new hires, but current employees could voluntarily opt into the new system if they so choose upon the plans’ start dates.
The new options would provide greater flexibility for employees who do not spend their entire career in public service while still providing good retirement security for career workers. Most employees who leave the service with 20 years or less of service time would see a better benefit under the new system than they would have earned under the current system due to the portability of the 401(k) style plan.
The legislation also includes a shared risk and shared gain provision further protecting taxpayers. If investment returns fail to meet projections over a long enough period of time, employees in the defined contribution system could pay slightly higher contribution rates. However, if investments perform better than projects, employees would pay a lower rate for their benefits.
Senate Bill 1 was sent to the House of Representatives for consideration.
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