HARRISBURG (June 8, 2017) Sen. Mike Regan (R-Cumberland and York) joined his colleagues in passing a significant public pension reform bill Monday that will rein in future costs for taxpayers.
With the House of Representatives’ approval of the bill earlier today, it now moves to the governor’s desk.
The bill is designed to align public employee retirement benefits with private-sector plans and limit future financial risks for taxpayers.
Senate Bill 1 –which drew the first bill number of the session to reflect its importance–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, Regan said.
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 public employees and retirees would not be affected.
“Exorbitant growth in public pension liabilities will threaten the financial security of future generations,” Regan said. “We can restrict this growth going forward, especially when the market underperforms, while still continuing to honor our obligations to retirees and our taxpayers.”
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 and school employees already have.
The new system would only apply to new hires, but current employees could voluntarily opt into the new system if they choose.
The new options would provide greater flexibility for employees who do not spend their entire career in public service while still providing ample retirement security for career workers. Most employees who leave 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 “shared risk” and “shared gain” provisions, further protecting taxpayers. If investment returns fail to meet projections over a long enough period of time, employees in the defined benefit system could pay slightly higher contribution rates. However, if investments perform better than projected, employees would pay a lower rate for their benefits.
“Pension reform has been a priority of mine and this General Assembly for years,” Regan said. “It is encouraging to see that legislators and the governor have been able to come together to stop the hemorrhaging and reform the system for new hires so that taxpayers are protected from staggering pension-driven increases in state and local taxes in the future.”
Noah Karn (717) 787-8524