VIDEO: PA gov looks at 401(k)-style plan to curb pension crisis
State House preparing bills that focus on 401(k)-style pension plan
By Eric Boehm | PA Independent
HARRISBURG — Gov. Tom Corbett’s opinion on the state’s public pension system is clear: “We have to fix it. It’s that simple.”
Of course, it’s not that simple. The state’s two major public pension systems, the State Employees Retirement System and Public School Employees Retirement System, have an unfunded liability of more than $36 billion.
The governor said he was not prepared to recommend any solutions at this time, though he supports a 401(k)-style pension plan.
The House State Government Committee on Tuesday discussed several pension bills, including measures that would move all future state workers, teachers and lawmakers into a 401(k)-style defined contribution plan instead of the existing defined benefit plan.
“Our pension plans are taking on water every single day. We need to plug the hole, and then start to bail the water out, and this begins the process of plugging the hole,” said state Rep. Eli Evankovich, R-Westmoreland, the sponsor of one of the proposals.
In a defined benefit plan, benefits are guaranteed based on a formula that includes years of service and salary. A defined contribution plan allows workers to save for retirement and invest as much or as little as they choose.
Pennsylvania is facing much higher contributions to the pension funds in coming years to keep the current plans going. The funds took hits because the state failed to meet its financial obligations for a decade, and the Great Recession brought an economic downturn starting in 2008.
This year, pensions are consuming $1.1 billion of the state’s $27 billion budget. That figure will increase to $1.6 billion next year and more than $4 billion by 2016, according to estimates from the pension systems and the governor's budget office.
“If we do not address this pension issue now, we will be worrying about how we pay for the pensions, and we won’t be able to pay for other needed services,” Corbett said.