May. 15, 2015
HARRISBURG – In a move aimed at proactively tackling the state’s largest economic challenge to date, the House State Government Committee, of which Rep. Rich Irvin (R-Huntingdon/Centre/Mifflin) is a member, approved legislation to reform Pennsylvania’s two public pension systems.
Pennsylvania funds two large pension systems, the State Employees’ Retirement System (SERS) and the larger Public School Employees’ Retirement System (PSERS). Both are underfunded by more than $53 billion and are requiring larger shares of state and local school districts’ budget dollars to keep up with the funding requirements imposed by the state.
House Bill 727 would place future state workers and school district employees into an employee-directed defined contribution plan, similar to a 401(k) system, rather than the current and wholly taxpayer-funded defined benefit plan.
“I cannot emphasize enough the severity of the problem,” said Irvin. “Currently, we are facing a combined unfunded liability of the two plans, which has reached $53 billion and grows by $10 million a day, according to the Pennsylvania Employee Retirement Commission. If we put that in context, our state budget is nearly $30 billion annually, so if we do nothing, this could lead to the largest financial disaster in our Commonwealth’s history. Cuts in services and tax increases will be inevitable if we don’t deal with this, and our state retirees and current employees will suffer and may not receive the benefits promised them if we do nothing.”
Irvin noted that the unfunded liability is putting pressure to increase both local and state taxes, and it’s diverting funding from other vital government services. Pennsylvania’s Independent Fiscal Office estimates that the General Fund should contribute $2.4 billion next fiscal year as the state’s share of the cost for the two pension systems.
“House Bill 727 is the first step in correcting the problem or, at least, in stopping the bleeding, but we still have the massive amount of debt that needs to be dealt with,” said Irvin. “I believe we should address both new hires and the unfunded liability, but in two separate bills to ensure we first stop the problem and then address the underfunding. House Bill 727 helps us accomplish that goal.”
The state Senate this week approved legislation in its chamber to also address pension reform. However, Senate Bill 1 is an all-inclusive pension reform package which would also reduce benefits to current employees. Irvin said there is a concern with the constitutionality of reducing current employee benefits which may be challenged in the courts if the bill would become law.
“Senate Bill 1 does not give me confidence in its legality. I think we would be wise to address different aspects of the bill in separate legislative measures,” said Irvin. “First, we need to address the employee distribution structure as it pertains to new employees coming into the system. Second, we need to address the way in which we will approach tacking the unfunded liability. Let’s not kid ourselves, this is a massive amount of liability to pay off and we need to take this in small, yet decisive, steps.”
The House State Government Committee passed House Bill 727 this week. The bill will next be voted on by the full House.
Representative Rich Irvin
81st Legislative District
Pennsylvania House of Representatives
Media Contact: Tricia Lehman
tlehman@pahousegop.com
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