Pennsylvania Governor Tom Corbett

Pension Reform Plan

Governor Corbett’s pension reform plan is a responsible approach to ensure the long term strength of the system, and guarantees no changes to benefits for retirees and no changes to benefits accrued by current employees through the effective date of the plan.

Moving new employees to a defined contribution plan

    • State Employees’ Retirement System, or SERS, employees hired after Jan. 1, 2015 and Public School Employees’ Retirement System, or PSERS, employees hired after July 1, 2015 will be enrolled in a 401(a) defined contribution plan, similar to a 401(k) plan.

    • To ensure that the commonwealth’s new employees have an adequate retirement, enrollment in the 401(a) plan will be automatic, and most state employees will be required to contribute at least 6.25 percent of their salary to their plan, while public school employees will need to contribute at least 7.5 percent.

Changing the formula for future benefits for current employees’ plans

Changes to the formula will be effective for SERS employees on Jan. 1, 2015 and for PSERS employees on July 1, 2015, and include:

    • Reducing the multiplier in the formula used to determine future pension benefits by a half percent for all employees that are currently locked into a multiplier above the 2 percent level, except for those who previously bought up to the higher multiplier. Current employees can still keep their higher multiplier by paying a higher contribution rate.

    • Capping pensionable compensation to 110 percent of the average salary of the prior 4 years when determining an employee’s final average earnings.

    • Capping pensionable income at the Social Security wage base, which is $113,700 for 2013.

    • Determining an employee’s final salary by averaging the employee’s last five years of compensation.

This plan also corrects a provision in the retirement calculation that provided an annuity that was higher than the amount that could be supported by the remaining funds in employees’ pension accounts. Moving forward, if current employees choose to withdraw their contributions, their pension payments will be based on the amount remaining in their pension account.

Limiting amount by which the commonwealth’s employer contributions can be increased, otherwise known as “tapering the collars”

Currently, the state must pay an annual required employer contribution rate, which is determined by the amount of unfunded liability and other costs. By law, the state must increase that rate by 4.5 percent each year. This annual rate, currently hovering over 10 percent for both funds and expected to rise to close to 30 percent in the next 8 years, has caused unsustainable growth in employer contributions.

    • This plan reduces current annual employer contribution limits from 4.5 percent to 2.25 percent in 2013-14, with an increase of half a percentage per year until the collars reach 4.5 percent, or until the collared rate is equal to the annual required contribution rate.

To find out more about the growing pension crisis in Pennsylvania, click here.