|February 14, 2017 10:44 AM
|Representative John D McGinnis
|All House members
|Legislation to provide a defined-contribution plan for all new public sector employees, both state and municipal
|I will soon be introducing legislation (nearly identical to that offered by Senator Pat Browne in 2009, SB 566) to provide a defined-contribution plan for all new public sector employees, both state and municipal.
Many of our municipal pension plans are deficiently funded and, of course, the debt of our two state pension systems exceeds the total of all other public debt in Pennsylvania. The predicate for this debt has been the defined-benefit (DB) structure of public sector employee retirement. DB plans allow elected officials to gain political favor by overpromising benefits and to avoid short-term political disfavor by not properly funding them.
The private sector has for decades moved almost exclusively to the defined-contribution (DC) retirement plan for its employees. The employee has ownership rights over assets in the plan. These assets are portable and are not dependent upon the viability of the employer. Investment strategies can be tailored to the investment needs of individual employees and employees enjoy the full benefit of market returns. Additionally, employees are able to integrate the investment of these funds with the rest of his or her portfolio.
My proposal will provide all new public sector employees—state employees, school employees, and municipal employees--with a defined-contribution plan where the employer (taxpayers) will match dollar-for-dollar employee contributions up to 5% of salary. Assuming only a 6% investment rate of return, an employee of 35 years could expect an annuity over 60% of his or her final salary. When Social Security is added on, this would be a very generous retirement ratio of close to 100% of one’s final year of salary.
Perhaps the most important benefit for employees is removing them from the political gamesmanship of Harrisburg. No longer will future legislators be able to use the promise of enhanced pension benefits for retirees as a tool for re-election. Public employees should never be a political toy of elected officials.
Pennsylvania taxpayers - the public employer - will enjoy many advantages as well from a shift to a DC plan. First, and foremost, taxpayers will be saved from future pension crises, a cost that may very well be unaffordable. Retiree benefits will become predictable and sustainable, costs will be easily defined, and future liabilities will be fully funded.
Public sector employees deserve fair retirement plans and taxpayers deserve fair treatment. After observing the private sector shift to defined-contribution retirement plans over the past few decades, and the federal government made a similar change in the 1980s, it is time for our Pennsylvania government to do the same. Please join me as a co-sponsor on this important legislation for the future of Pennsylvania.
Introduced as HB779