The unfunded liability for state employees and teacher pensions is $41 billion, and if something isn’t done soon we are on the hook for it. The Governor is offering a plan that will almost surely result in a tough political fight because part of it calls for adjusting the pension formulas of those currently employed. There may be no alternative. His budget office says that next fiscal year the costs for pensions will consume 60 percent of all new revenues, money that should be going to core government programs.
Governor Corbett’s proposal reduces the multiplier in the pension formula from 2.5 down to 2 percent for all current employees as of fiscal year 2015-16. New state employee hires would be required to contribute 6.25 percent of their salary to a 401(a) defined contribution plan and new teacher hires would have to contribute 7.25 percent. For its part, the state would input 4 percent into this same plan.
The governor’s office says members who “bought into” multipliers above 2 percent would not be affected by the change and those who wish to retain the higher multiplier would be required to contribute a higher, not-yet-determined amount each paycheck.
Another proposal changes the way a member’s “final salary” would be determined for pension benefits. If enacted, the amount would be calculated by averaging the member’s wage over the last five years of service. The pension amount is not to exceed 110 percent of that average.
Last July, Moody's Investor Service cut Pennsylvania's bond rating to Aa2 from Aa1, citing the Commonwealth's "large and growing pension liabilities and moderate economic growth," which "will challenge the return to structural balance, contributing to a protracted financial recovery.”