HARRISBURG, Pa. (AP) - Answers to some commonly asked questions about pension reform in Pennsylvania:
- Why are Gov. Tom Corbett and the Legislature proposing to change the pension system?
To reduce the taxpayers’ share of state and school employees’ soaring pension costs, which are expected to increase by about $600 million this year, and the “unfunded liability” of the two major public employee pension funds, which is more than $45 billion.
- How generous are the current pensions for members of the State Employees’ Retirement System and the Public School Employees’ Retirement System?
Most members of both systems receive a benefit equal to 2.5 percent times their years of service multiplied by the average of their three highest annual salaries. So an employee with an average top salary of $60,000, after 30 years’ of service, would receive an annual pension of $45,000.
- What is being proposed?
Shifting all new hires and former employees who return to service to a new “hybrid” plan effective in 2015. There were about 267,000 active employees in the Public School Employees’ Retirement System as of June 30 and about 105,000 in the State Employees’ Retirement System as of Dec. 31.
- How would the proposed “hybrid” plan work?
It is a two-tiered system that combines a traditional defined-benefit plan, or pension, with a 401(k)-style defined-contribution plan.
Employees would still receive a pension, or guaranteed benefit, but not as large as they would have under the current system.
In the defined-benefit component, employees would contribute 6 percent of their salary until they reach $50,000 annually or their 25th anniversary. The benefit formula would be 2 percent times the years of service times the average of their five highest salaries.
For the defined-contribution plan, they would initially pay 1 percent of their salary and taxpayers would contribute 0.5 percent. Once they reach $50,000 in annual salary or their 25th anniversary, employees would pay 7 percent and taxpayers would chip in 4 percent.
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