A new pension reform is now in effect for most new state workers in Pennsylvania, creating two retirement options in order to cut taxpayer risk while helping shore up funding for state pension plans.
The law, known as Act 5 of 2017, puts newly hired state employees in either a hybrid plan or a full-blown 401(k) account. The hybrid plan would keep half a retiree’s money in a traditional, taxpayer-backed defined benefit fund, and the other half into a private 401(k) plan tied to the stock market. The overhaul kicks in for teachers on July 1.
While the new set-up lowers taxpayer risks, and projects to save from $43.3 million to $140 million annually over 30 years, it also lowers the retirement benefits for those enrolled in these plans.
This means new workers in the State Employees Retirement System (SERS) will lose between $6,425 and $34,048 in benefits. Teachers and school staff in the Public School Employees Retirement Systems (PSERS) will see reductions between $7,327 and $33,173.
Both figures are estimated for a 65-year-old retiring with 35 years of service and an aggregate final salary of $60,000, according to news outlet The Morning Call.
Additionally, both plan members will be charged by the companies managing their 401(k)s. Great-West Life & Annuity Insurance of Denver will handle the state workers, and Voya Financial will run the accounts of the school workers plan.
Pennsylvania lawmakers, corrections officers, and police, however, are excluded from participating in Act 5. Lawmakers can choose to freeze their old defined benefit plans and then open one of the new ones, essentially beginning a second retirement account. The deadline for those eligible is March 31.
The two retirement systems have a collective pension debt of $72 billion. The state of Pennsylvania is 53% funded.
SERS and PSERS have $30 billion and $56.7 billion in assets under management, respectively.
Representatives from both systems were unavailable for comment.