GOV. CORBETT'S PRIORITIES
PENSION REFORM: WHAT DOES IT MEAN?
Over the next few months, the Governor will be working closely with SERS and PSERS, along with the unions and the legislature to achieve pension reform. With more than $41 billion in unfunded liability and continually rising employer contribution costs, we must address the problem now in order to restore financial stability to the two pension systems and avoid spending reductions for core programs and services provided to our citizens.
The basic principles of this pension reform proposal are summarized below:
- • No changes are being proposed for current retired public school or state employees.
- • No changes will occur for any current employees any earlier than January 1, 2015. Additionally, the value of benefits accrued by employees will not be diminished.
- • Changes to the retirement calculation will be effective for SERS employees on Jan. 1, 2015 and for PSERS employees on July 1, 2015. Specifically, the proposal:
o Reduces the multiplier in the formula used to determine future pension benefits by .5 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, which is yet to be determined.
- o Caps pensionable income at the Social Security wage base, which is $113,700 for 2013.
- o Caps pensionable compensation to 110 percent of the average salary of the prior 4 years when determining an employee’s final average earnings.
- o Determines an employee’s final salary by averaging the employee’s last five years of compensation.
- o For employees who choose to withdraw their contributions, pension payments will be based on the amount remaining in their pension account.