HARRISBURG – Senator Pat Stefano (R-32) today voted for a historic pension reform bill that will transform public employee retirement benefits for the 21st Century and limit future financial risks for taxpayers.
Senate Bill 1, which passed the Senate by a bipartisan vote of 40-9, 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 are not affected.
“When I ran for office I promised my constituents I would not take the current pension because it was not affordable for the Commonwealth to do so,” Stefano said. “Since then, it has been my number one priority and that of the Senate Republican Caucus, to pass meaningful pension reform legislation. We must do so because the pension crisis are a leading cause of property tax increases in our school districts and the biggest cost driver causing our budgetary issues in the state.”
Stefano said 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 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.
“This is the third time I have voted for comprehensive pension reform.While this bill is not as strong as the first pension reform measure the Legislature passed and Governor Wolf vetoed, it is a huge step in the right direction,” Stefano said. “While it does not solve the problem in full, it stops the crisis from growing larger and brings predictability to our budgeting process on the state and local school district level by removing taxpayers from the risk of lower than expected investment returns. I urge the House to pass and the Governor to sign this important piece of legislation.”
Senate Bill 1 was sent to the House of Representatives for consideration.
Contact- Ben Wren (717)-787-7175