Pension reform in Pennsylvania will retain defined benefit plan
State legislatures across the nation are grappling with how to adequately fund pension plans. Few have done so in a bipartisan manner. Now Pennsylvania is 99 percent of the way toward achieving a model bipartisan solution.
With final passage of these pension reforms, Pennsylvania's legislature could provide a rare example of lawmakers working together to resolve a pressing problem, delivering a solution that reduces costs for taxpayers, protects retirement security for employees, and strengthens our schools.
The reform legislation also calls on employees to contribute more toward their retirement, further reducing costs to taxpayers. Unlike their employers, government workers have never taken a holiday from their pension obligations, contributing up to 7.5 percent of every dollar they earned. Under the reform bill, new employees would contribute more and share some market risk.
The pension legislation is right to retain guaranteed, or "defined benefit," pension payments based on years of service. As Americans were rudely reminded over the past three years, the alternative, 401(k)-type plans can fluctuate wildly and leave retirees vulnerable.
Defined-benefit plans are also a better deal for taxpayers, delivering retirement security at a lower cost. That's because the administrative costs and fees attached to 401(k)-type plans chew up retirement savings.
Defined-benefit pension plans also boost a state economy. They ensure that more retirement savings stay in the pockets of the middle class and go to local communities rather than out-of-state fund managers. Public pension funds can also invest in job-creation projects that have been shown to yield good returns.