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Pennsylvania Becomes Ninth State to Move Away from Pensions for Public Workers

Last week, Pennsylvania Governor Tom Wolf signed a bill making the Keystone State the ninth to replace the traditional pension system for state employees with a “hybrid” retirement account that combines a pension structure and 401(k)-style plan.

The new law marks a continuing shift away from the burdensome, pension-based retirement systems for public employees threatening to drive states and municipalities into bankruptcy.

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Taking effect in January 2019, the Pennsylvania law will vastly reduce the burden of state taxpayers presently obligated to collectively serve as the guarantor of the pension benefits for public employees.

As reported by CNN Money, Pennsylvania joins Rhode Island, Virginia, Tennessee, and Georgia in creating a multi-faceted structure wherein state workers contribute to one plan, similar to a traditional pension, that will provide a guaranteed payout at retirement, and to a second that’s similar to a 401(k), which employees can carry with them if they happen to move on from working for the state. States that have passed the plans will continue to make contributions on behalf of their employees, but the total obligation will be greatly reduced.

In a statement, Gov. Wolf bottom-lined the importance of the reform measure, saying, “Let's be clear: This plan addresses our liability in the only real and responsible way possible, by changing the structure of pension benefits.” Pennsylvania’s pension fund, which was running a $20 billion surplus in 2000, posted a $70 billion deficit in 2015, according to CNN Money.

Those hired for high-risk jobs in Pennsylvania, like police officers, will remain, at least for now, in the traditional pension system. All other new hires, such as teachers, will be moved into the new system.

As with so many other states, Pennsylvania found its pension structure in particular jeopardy after the 2008 economic collapse. Additionally, commitments made to significant benefit increases, including some that were retroactive, helped put Pennsylvania’s system, as well as the systems of several other states, at grave risk of default.

By Robert G. Yetman, Jr. Editor At Large

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