Senate Approves Public Pension Reform Measure

Senator Scott Hutchinson issued the following statement following Senate passage Monday of Senate Bill 1, a measure restructuring the state’s two public employee pension systems – the State Employees’ Retirement System and the Public School Employees’ Retirement System – in order to make them viable in the long term.

“This bill is a step in the right direction. It recognizes that increasing pension costs must be addressed. It is important to stress that the benefits already earned by employees and retirees are protected. They are unchanged by Senate Bill 1. Instead, this bill provides an equitable way to address pension costs beginning with new hires,” said Senator Hutchinson, Chairman of the Senate Finance Committee. “Economic conditions in the Commonwealth have significantly changed since the defined benefit pension plan was established. Private employers have made the defined contribution, or 401k-style plan, the standard now. The current course is unsustainable for the taxpayers and property owners of Pennsylvania. It is long past time to enact these needed reforms and limit future financial risks for taxpayers.”

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 are not affected by Senate Bill 1. The legislation offers 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 a variation of the defined benefit system that state employees and school employees already enjoy.

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.

Senate Bill 1 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 hybrid plans could pay slightly higher contribution rates. However, if investments perform better than projects, employees would pay a lower rate for their benefits.

The bill now goes to the House of Representatives for consideration.



Contact:     Justin Leventry       (717) 787-9684

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