Office Information 
Lehigh Office 
Lower Macungie Township Administration Building
3402 Brookside Road
Macungie, PA 18062
Monday - Friday 9 a.m. to 5 p.m.
Phone: (610) 965-9933
Fax: (610) 965-9174

Berks Satellite Office 
Topton Borough Hall
205 S Callowhill St.
Topton, PA 19562
Wednesdays 9:30 a.m. to noon
*Walk-ins only. No mail, please.

Capitol Office
160A East Wing
Harrisburg, PA 17120-2134
Phone: (717) 787-1000
Fax: (717) 782-2893
Proposals Are Offered to Address Unfunded Pension Liabilities
9/19/2013
The Commonwealth of Pennsylvania, like many other government entities across the nation, faces a severe funding shortfall in its public employee pension plans. In order to understand the crisis and its possible solutions, it is helpful to examine how we got here.

The state operates two related but distinct public pension programs: the State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS). They are funded by employer and employee contributions and by investment earnings.

In total, some 815,000 people are members of these two systems. Nearly 300,000 of them are retirees who collect a combined $8 billion in disbursements annually.

After a sustained period of robust economic growth, generous pension improvements were made in 2001. The improvements were made retroactive to each employee’s start date. The equivalent employee contributions to these enlarged pensions, however, were not. This meant the enhancements were entirely contributions from the employer (the state and school districts); employees paid nothing additional.

Shortly after the passage of these expansions, the attacks of Sept. 11, 2001, led to a severe economic downturn. This drastically reduced the return on investments, which had been the main source of funding for SERS and PSERS.

As a result of the loss of investment income, the state’s required payments to the pension systems rose sharply. Hoping the economy would improve, the state delayed payments in 2002 by placing a temporary cap on its employer contribution rate. Unfortunately, the economy did not grow fast enough. Thus, the state attempted again in 2003 to limit its required funding payments.

The combined effects of increased benefits, reduced state funding, and insufficient investment earnings created the perfect storm that led to the underfunding crisis we face today.

In September of last year, Budget Secretary Charles Zogby informed the Public Employee Retirement Commission that SERS and PSERS together have an unfunded liability approaching $41.5 billion. To give you an idea of just how much that is, $41.5 billion is more than what the Commonwealth spends annually on education, human services, transportation and public safety combined.

According to the secretary’s report, if nothing is done, SERS and PSERS will have combined unfunded liability of $65 billion by 2021. This is clearly unsustainable.

Stirred by into action by these troubling figures, Gov. Tom Corbett proposed a pension reform plan in his budget address last February. The proposal includes placing new employees hired after July 15, 2015, into a defined contribution plan similar to a 401(k). Employees presently in the system would see no change in benefits they have already earned. For these employees, benefits accrued after these new proposals went into effect could see changes to the formulas for calculating benefits, and also to the contribution rates.

Existing retirees would see no changes in benefits under the governor’s plan.

Other proposals have also been introduced. One such measure would make changes only for new employees and shift them into a 401(k)-style plan. Questions linger, however, about any transitions from a pension program to a new 401(k) plan. Some estimates show substantial cost savings to the state, while others are less certain.

Other lawmakers have proposed issuing bonds to guarantee the solvency of our pensions systems while seeking concessions from present employees. And still more proposals linger on the horizon.

Please keep in mind that these proposals are just that, proposals. They serve only as starting points in the conversation. And though you may have heard otherwise, there are absolutely no plans under serious consideration that would alter the benefits of current retirees.

While there are still legitimate differences of opinion among legislators on how to move forward, one thing is abundantly clear – the current system is unsustainable, and we need to reform our pension system in Pennsylvania to not only lessen the economic impact to the state, but to also strengthen and support the pension systems for both current and future beneficiaries.

Representative Ryan Mackenzie
134th District
Pennsylvania House of Representatives

Media Contact: Ryan Travis, 717.260.6335
rtravis@pahousegop.com  
RepMackenzie.com / Facebook.com/RepMackenzie
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