On Wednesday June 19th, a bill was moved out of the Senate Finance Committee that would switch retirement plans for state and public school employees from a defined benefit pension plan to a defined contribution 401(k)-style plan. The bill (Senate Bill 922) passed through committee with a 6-5 vote. Senator Greenleaf (R-Bucks) voted with all of the Democrats on the Committee to oppose moving the bill to the Senate floor.
This pension “reform” bill would cost employees more money and provide reduced benefits. State and public school employees already agreed to increased contribution with benefit cuts in 2010 with Act 120. Now, only three years later, employees might have to sacrifice even more without giving Act 120 a chance to work.
Republicans are insisting that this bill is in the best interest of Pennsylvania taxpayers. This is not true – if state and public school employees stop paying into the pension system, there will not be enough revenue to fund retirees currently using their pensions. Taxpayers will have to make up those losses.
Two actuarial studies, one done for the State Employees’ Retirement System (SERS) and one for the Pennsylvania School Employees’ Retirement System (PSERS), indicate that switching to a defined contribution plan has the potential to cost taxpayers $40 billion more than the current system in the next 30 years.
Between 2009 and 2012, 43 other states have modified their pension systems. However, none of them switched their defined benefit plans to 401(k)-style defined contribution plans. These other states determined that type of switch would be harmful for taxpayers, employers, and employees. Pennsylvania should follow this reasoning and keep the current pension system.
The Pennsylvania AFL-CIO urges members of the Senate to oppose this bill. Defined contribution plans are not only bad for state and public school employees, they are a bad move for Pennsylvania.