Governor Corbett Releases Pension Reform Plan

3.   Limiting the amount by which the commonwealth's employer contributions can be increased

Currently, the state must pay an annual required employer contribution rate, which is determined by the amount of unfunded liability and other costs. By law, the state must increase that rate by 4.5 percent each year. This annual rate, currently hovering over 10 percent for both funds and expected to rise to close to 30 percent in the next 8 years, has caused unsustainable growth in employer contributions.

Corbett's plan reduces current annual employer contribution limits from the mandated 4.5 percent to 2.25 percent in 2013-14. That amount would increase half a percentage per year until it reaches 4.5 percent again, or until it is equal to the annual required contribution rate. This is otherwise known as "tapering the collars."

As a result of making these reforms, Corbett said the state's contributions to the pension systems can be reduced, providing much-needed budgetary relief.

Over the next five years, through the employer contribution limit changes, the commonwealth will realize nearly $2 billion in savings.

School districts and local education agencies would realize savings of more than $1 billion over five years, nearly $140 million in 2013-14 alone.

"This is a comprehensive approach that will require unprecedented collaboration among not only the administration and the legislature, but SERS and PSERS and the unions representing state and school employees as well," Corbett said. "But we must work together, as we have to take action now."

Corbett added that the pension reform plan includes no changes to benefits for retirees and no changes to benefits accrued by current employees through the effective date of the plan.

In November 2012, the Governor's Budget Office released The Keystone Pension Report, which provides additional details on Pennsylvania's current pension situation and is available for download at www.budget.state.pa.us.

Media contacts: Christine Cronkright, Governor's Office, 717-783-1116 Jay Pagni, Budget, 717-787-2542

SOURCE Pennsylvania Office of the Governor

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