Pennsylvania Governor Signs Pension Reform into Law
Pennsylvania Gov. Tom Wolf (D)
on June 12 signed into law Senate Bill 1
, a measure that provides new state employees hired after Jan. 1, 2019, including teachers, with three retirement benefits from which they can choose.
The state senate had passed the bill on June 5; three days later the Pennsylvania House of Representatives followed suit.
The retirement benefits from which new state employees hired after Jan. 1, 2019 can choose are:
1. a side-by-side hybrid DB/DC plan under which for teachers, the split is 5.5% of compensation to the DB and 2.75% to the DC (this is the default option if the employee makes no choice);
2. a side-by-side hybrid DB/DC plan, under which for teachers the split is 4.5% of compensation to the DB and 3.0% to the DC; or
3. a standalone DC-only plan, under which teachers would contribute 7.5% of compensation, employers would contribute 2% and additional voluntary contributions would be allowed.
Provider selection for local 403(b) plans remains at the discretion of school districts. The only selection requirements the new law outlines for local 403(b) or 457 plan providers is that they (1) are not also providers to the state DC plan; and (2) are able to provide school districts with the information referenced by section 8411.1 of the measure.
Wolf hailed the measure as “yet another demonstration that by working across party lines and branches of government, we can address important issues,” and termed pension reform a success.
A press release from Wolf’s office notes that SB 1 “received strong bipartisan support,” and not just in Harrisonburg. Pennsylvania School Boards Associations Assistant Executive Director for Public Policy John M. Callahan said, “The intent of Senate Bill 1 is to place our future employees’ retirement system on a viable path that will reduce investment risk by 53% or $15.5 billion over time. This plan protects taxpayers from jarring tax increases and/or draconian program cuts. Senate Bill 1 ensures that our schools will have a retirement plan that is both competitive and sustainable.” It also noted that in a joint statement, Allegheny Conference on Community Development CEO Dennis Yablonsky, Greater Philadelphia Chamber of Commerce President and CEO Rob Wonderling and Pennsylvania Chamber of Business and Industry President and CEO Gene Barr said, “Passage of this bill would mitigate more risk than any other state that has recently enacted pension reform. We believe this to be historic and meaningful legislation, and we give it our unqualified and enthusiastic support.”
Barr also said that the Pennsylvania Chamber believes that the measure “will put the state pension systems on a better path to stability and sustainability. This legislation also provides for more steady and predictable funding from taxpayers, which will help establish more structurally sound systems and lead to less uncertainty for current and future school and state employees.”
The Pew Charitable Trust also expressed support for SB 1 “because it would build upon previous legislation to achieve full funding of the state’s pension system, lower costs and significantly reduce risk for taxpayers, and preserve a path to retirement for skilled public workers.” Pew went on to say that its analysis indicates that SB 1 will saves the state $5 billion to $20 billion over 30 years, “depending on investment performance.”