Pa. Governor Signs Major Pension Reform Bill Despite Previous Veto

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Pennsylvania Gov. Tom Wolf today signed into law major public pension reform legislation featuring 401(k)-style components. This reform, called one of the most comprehensive and impactful pension overhauls in the nation, comes after Wolf ignored the state's public pension crisis during his gubernatorial run and vetoed a similar pension reform bill in 2015.

Pennsylvania's free market think tank.

After arguing against reforming state pensions during his gubernatorial run and vetoing pension reform legislation in 2015, Governor Tom Wolf today signed into law the most significant state pension overhaul in the nation.

In a transition from the state’s current traditional pension systems, the legislation, which passed the state Senate and House overwhelmingly with bipartisan support, will enroll new state employees and school teachers in a side-by-side hybrid plan consisting of a defined benefit component and a 401(k)-style component. New employees could also choose to enroll solely in the 401(k)-style plan, and current employees could choose to opt in to the new system.

In a letter supporting this reform, the Pew Charitable Trusts said the legislation will help ensure Pennsylvania’s pensions are, “sustainable and secure for both taxpayers and public workers for decades to come,” and called the bill, “one of the most—if not the most—comprehensive and impactful reforms any state has implemented.”

“For a state of Pennsylvania’s size and influence to enact such substantial reform sends the clear message that positive policy change is possible, despite years of fierce opposition,” commented Nathan Benefield, vice president and COO for the Harrisburg-based Commonwealth Foundation. “This reform begins fixing the state’s pension system now while laying the groundwork for even more improvements in the future.”

Moody’s Investors Service estimated unfunded liabilities for state public pensions nationwide would reach $1.75 trillion this year.

In Pennsylvania, the pension crisis has been more than a decade in the making. Fifteen years ago, the state’s two public pension plans, the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS), held a surplus. Yet, in the past ten years alone, the plans’ unfunded liabilities have grown by more than 800 percent, from $7.6 billion in 2006 to $71 billion (latest market value) last year.

For years, government union leaders fought back reform efforts. And in 2015, Gov. Tom Wolf vetoed pension reform legislation very similar to the current plan. Yet, a 2016 poll showed most Pennsylvania voters wanted reform, and over the last several elections, Pennsylvanians increasingly supported lawmakers who would make pension reform a priority.

“Several states in the Northeast and across the country are facing pension crises similar to—or even worse than—Pennsylvania’s,” Benefield continued. “But because momentum for reform has been growing for several years, even a governor named the most liberal in the nation went from vetoing reform in 2015 to signing it in 2017. If this kind of change can happen in Pennsylvania, it can happen anywhere.”

According to a report from the state’s Independent Fiscal Office, the reform will reduce taxpayers’ pension risk by approximately two-thirds. Additional details on the specific features of Pennsylvania’s reform can be found here.

Nathan Benefield and other Commonwealth Foundation experts are available for comment.

Gina Diorio
Director of Media Relations

The Commonwealth Foundation transforms free-market ideas into public policies so all Pennsylvanians can flourish.

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Gina Diorio