Pat recognized even before taking office that one the greatest challenges facing the Commonwealth and school districts was the costs of our pension programs.

His Expertise in finances and understanding of actuarial assumptions has made him a leader on this issue and his colleagues have consistently turned to him for advice on this subject. Pat understands that a pension system that is unsustainable is not only a tremendous burden on taxpayers, but also will lead to significant job insecurity for our teachers and state workers.

That is why Pat authored multiple reforms that have reduced pension costs to taxpayers in excess of $30 billion, significantly eliminating the financial risk that the state retirement systems pose to our state and its citizens, while still providing a competitive retirement package for state employees and teachers.

With the Commonwealth’s pension liabilities reaching staggering heights (over $80 billion) and growing each day and the state’s contributions to school district pensions increasing from $290 million to a whopping $2.1 billion (a 618% increase) over the past decade, the General Assembly took historic action this summer to restructure the state’s two public employee pension systems.

The resulting legislation has been hailed by national groups as being the pension reform measure having the most impact in the country. This new law transformed state employee and teacher pensions to reflect today’s workforce with a 401(k)-style plan that provides employees with options and portability.

Under the new plan, new employees and lawmakers will choose between three retirement options, including a full 401(k)-style plan or one of two side-by-side hybrid plans that include both a traditional pension and a 401(k)-style option. Current employees will have the opportunity to opt into one of these plans as well, if they so choose. Lawmakers are treated just like every other employee – new lawmakers will be placed into the new plan; current lawmakers will have to choose to opt in. Current retirees will see no changes to their benefit.

A key part of this legislation is the shared risk provisions where if investment assumptions are not met, the employee pays a higher percentage into the plan and if the state returns higher than assumed returns, the employee pays a lower percentage into the plan. This will ensure that even in the state’s traditional pension plans, the entire burden of market investment loss is not all on the taxpayer.

An analysis of both systems shows that if investment return projections are missed by 1 percent, taxpayers will realize a savings of $27 billion when the new plan is fully in place. At the same time, employees share in the benefit if the investment returns exceed expectations.

The plan also includes the vital component of portability, ensuring that employees can take their benefits with them if they choose a different career path. More than 75 percent of teachers and more than half of state employees leave their job before they reach 20 years of service. These employees would fare better under the new system.

The Pew Charitable Trusts remarked that passage of this bill “represents the single largest pension reform, in terms of protecting taxpayers, in U.S. history and combined with the Act 120 (see below) funding reform, represents the largest turnaround for any state.”

Even before this historic pension legislation, Pat had long supported providing an appropriate sharing of risk between employer and employees in pension plans as most commonly reflected in private sector pension plans.

Accordingly, he also drafted Pennsylvania’s Pension Reform Act of 2010 which fundamentally reformed Pennsylvania’s public pension systems and saves the Commonwealth and school district taxpayers $30 billion in pension costs. This legislation made impactful changes to the traditional defined benefit plan for new employees by:

  • Establishing a new shared risk component of the defined benefit plan to help protect the Commonwealth if it is unable to reach its actuarial investment assumption rates. This helps to prevent a repeat of the Commonwealth’s current situation of having $80 billion of unfunded pension debt.
  • Increasing the employee minimum vesting periods in their retirement plan from 5 years of service to 10.
  • Increasing the length of service requirements for new employees from 35 years of service to a combination of years of service and age of individual equal to 92. This promotes sustainability by not providing a full pension annuity to school district and state workers who do not meet higher minimum retirement age requirements.
  • Limiting a new member’s annual retirement benefit to not more than the member’s final average salary.

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