Lancaster County Senators Support Historic Pension Reform Bill

HARRISBURG — Senators Ryan Aument (R-36) and Scott Martin (R-13) hailed Senate passage of a historic pension reform measure today that will protect taxpayers and provide a wider range of retirement planning options to newly hired public-sector employees.

Senate Bill 1 would offer all new public-sector employees 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 smaller defined benefit plan.

The bill is projected to save more than $5 billion and could shield taxpayers from $20 billion or more in additional liabilities if state investments fail to meet projections. A new commission would also be created with the goal of reducing investment management costs by an additional $3 billion.

“The public employee pension crisis is one of the most serious public policy problems facing our state. Unfunded pension liabilities are now in excess of $60 billion, and the consequences of inaction grow more serious and expensive with each passing day,” Aument said. “Each year, pension costs to taxpayers increase by hundreds of millions of dollars. Senate Bill 1 finally stops this hemorrhaging and creates a new system that makes sense both for taxpayers and for state and school employees.”

“For too long, pension costs have led to higher property taxes for homeowners and less money actually reaching the classroom. We can’t continue to let that problem fester and devour even more taxpayer resources,” said Martin, who declined to accept a state pension when he took office earlier this year. “We have an obligation to do everything in our power to reduce the cost of state government. By addressing one of the biggest cost-drivers in the state budget and school district budgets throughout the commonwealth, we take a huge step forward toward that goal.”

Both Senators emphasized the fact that the legislation would not affect the benefits of current employees or retirees in any way. However, current employees would have the option to participate in the new system if they choose to do so.

“One of the biggest challenges in fixing the pension problem is balancing the needs of school and state employees with the best interests of taxpayers. The approach in Senate Bill 1 acknowledges that not every teacher or state employee will stay in the same position for 30 or 40 years,” Martin said. “The system for new employees offers portability, ensuring employees can take their retirement benefits with them if they explore a different career path. That kind of flexibility is sorely lacking under the current system.”

More than 75 percent of teachers and more than half of state employees leave their job before they reach 20 years of service. Data from Pennsylvania’s two largest pension systems show that many employees and teachers leave their positions with less than 10 years of service.

“It is not uncommon for an individual to change jobs several times throughout their adult life. The current system strongly discourages teachers and other public servants from leaving their job, even if they aren’t happy with their current position,” Aument said. “Most employees who spend less than 20 years in public service would see a better benefit under the new system than employees in a similar situation in the old system. The reforms in Senate Bill 1 create a public employee pension system that is truly built for today’s workforce.”

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 projections, employees would pay a lower rate for their benefits.

Senate Bill 1 was sent to the House of Representatives for consideration.


CONTACT:  Jake Smeltz (717) 787-4420 (Senator Aument)
                         Terry Trego (717) 787-6535 (Senator Martin)