There is good news out of the Keystone State. This week Senate Bill 1, legislation that will result in meaningful pension reform, passed through both chambers of the Pennsylvania Legislature and has been sent to the desk of Gov. Tom Wolf (D), who is expected to sign the measure into law.

If signed into law by Gov. Wolf, this reform would have all new state employees put into a hybrid pension system, as opposed to the current defined benefit system. Under this plan, approximately half of the pension would continue to be a defined benefit plan and therefore backed by the taxpayers, while the other half would go into a defined contribution retirement plan similar to a 401(k).

This hybrid plan would take effect for all new employees hired after January 1, 2018. While all new workers will automatically be enrolled in the hybrid pension plan, they can elect to have all retirement savings placed into a defined contribution plan. Additionally, all current employees would be given the option to enroll entirely in a 401(k)-style defined contribution plan.

The aim of this pension reform proposal is to shift risk away from taxpayers, while still providing adequate benefits, and working to pay off the debt racked up by the old system.

Currently, Pennsylvania has an unfunded pension liability of about $76 billion. While that is not the worst unfunded pension liability in the country, it is a significant amount of money that Pennsylvania taxpayers are ultimately on the hook for. According to the Pew Charitable Trust, SB 1 represents the largest shift in taxpayer risk of any state pension reform

The Commonwealth Foundation, which has previously outlined the necessity of pension reform in Pennsylvania, was one of the top voices highlighting the importance of this bill. “While this bill does not completely solve the pension problem SB 1 represents the type of structural reform that will put Pennsylvania on a path toward long-term fiscal stability while protecting public employees and taxpayers alike,” Commonwealth Foundation Vice President Nathan Benefield said, adding that the bill “brings transformative pension reform one step closer to reality in Pennsylvania”

Americans for Tax Reform supports SB 1 as a necessary first step towards addressing the state’s massive unfunded pension liability, for which taxpayers are on the hook, and urges Gov. Wolf to sign this important reform into law. 


Photo Credit: Jim Bowen