Truth or Consequences
Either we face the truth or the taxpayers will suffer the consequences of inaction. Pennsylvania’s two pension systems, the Public School Employees Retirement System (PSERS) and State Employees Retirement System (SERS), are underfunded by no less than $50 billion, using the most optimistic calculations. This liability equates to a bill of more than $4,000 to every man, woman and child who resides in this Commonwealth. I have, and will continue to advocate for reform with the goals of protecting the benefits already earned by both retirees and current employees, providing future employees a method to save for retirement, and most importantly making the plan affordable to the Pennsylvania taxpayers who must fund all government services. Understanding the significant flaws of the current system and the subsequent causes of the $50 billion unfunded liability are essential to developing a solution which supports these goals.

Calculation of retirement benefits under the current system for an employee who works to normal retirement age is: final three-year average salary multiplied by 2.5 percent multiplied by years of credited service. For example: An employee retiring with a final average salary of $65,000 and 30 years of service would receive guaranteed annual payments of approximately $48,750 per year for life. Individuals retiring prior to age 60 and/or withdrawing a lump sum of their contributions and accumulated interest will have their defined benefit payment reduced based upon their decisions.

Several items created the current unfunded liability: SERS and PSERS were significantly underfunded by the employers, both the Commonwealth and School Districts; in 2001, the General Assembly increased the multiplier from 2 percent to 2.5 percent and made the increase retroactive for current employees; the construction of the system which allows for the escalation (spiking) of the final average salary; salary increases that increased greater than the rate of inflation; and the General Assembly increasing the payout for those already retired. Employees who earned these benefits are not at fault for working within the parameters of the system. It is our collective responsibility to combat the brazen fabrications and mistruths being told by special interests, examine the contributing factors of the current issue, and develop a plan to fix it.

There are two tenants of public pension reform: First, to keep the promise to retirees and current employees by fully funding their earned benefits. The second would include a defined contribution savings plan for future employees, people not yet hired. Defined contribution retirement plans remove politicians from the decision to underfund or “borrow” from the system and protect the taxpayer from unrealistic earnings assumptions by plan investors. In essence, a properly crafted system will keep the integrity of the current system and provide a competitive plan for future employees, thus mitigating risk for Pennsylvania’s taxpayers.

Fred Keller
Representative, 85th Legislative District
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