Feb. 5, 2013
/PRNewswire-USNewswire/ -- Governor Tom Corbett today unveiled a comprehensive pension reform plan to address
in unfunded liability and the effects that increasing pension contributions have had on the state's budget.
Without reform, the Governor's Budget Office has calculated that pension costs will consume approximately 60 percent of all new revenues in the 2013-14 fiscal year. That translates to more than
that could be spent on core programs and services.
"Reforming our pension system is not going to be easy," Corbett said. "We understand the challenges ahead. It's imperative that we find some budget relief so that we can continue supporting the core functions of government."
The plan can be located at
. Highlights of the plan include:
Moving new employees to a defined contribution plan
State Employees' Retirement System, or SERS, employees hired after
Jan. 1, 2015
and Public School Employees' Retirement System, or PSERS, employees hired after
July 1, 2015
will be enrolled in a 401(a) defined contribution plan, similar to a 401(k) plan.
To ensure that the commonwealth's new employees have an adequate retirement, enrollment in the 401(a) plan will be automatic, and most state employees will be required to contribute at least 6.25 percent of their salary to their plan, while public school employees will need to contribute at least 7.5 percent.
Changing the formula for future benefits for current employees' plans
Changes to the formula will be effective for SERS employees on
Jan. 1, 2015
and for PSERS employees on
July 1, 2015
, and include:
- Reducing the multiplier in the formula used to determine future pension benefits by .5 percent for all employees that are currently locked into a multiplier above the 2 percent level, except for those who previously bought up to the higher multiplier. Current employees can still keep their higher multiplier by paying a higher contribution rate.
- Capping pensionable compensation to 110 percent of the average salary of the prior 4 years when determining an employee's final average earnings.
- Capping pensionable income at the Social Security wage base, which is $113,700 for 2013.
- Determining an employee's final salary by averaging the employee's last five years of compensation.
Corbett's plan also corrects a provision in the retirement calculation that provided an annuity that was higher than the amount that could be supported by the remaining funds in employees' pension accounts. Moving forward, if current employees choose to withdraw their contributions, their pension payments will be based on the amount remaining in their pension account.