Page 10 of the Roadmap outlines the panel’s conception of the benefits that it believes the state can afford:
Obviously, to be an effective reform, the new plans must also cost less going forward than the old plans would. As a starting point, the Commission has assumed that the employer and employee contributions would each be 4% of salary, with 8% employer and employee contributions for employees who, like many firefighters and police officers, do not participate in Social Security. Based on a total State/local government payroll of $26.637 billion, the Commission estimates the employer cost of the new plans would be $1.23 billion. The Commission believes that this is an affordable initial baseline for contributions, subject to augmentation in the event that quantification of costs and savings establishes the affordability of a higher level of employer contributions.
But what would that mean in real money for, let’s say, a public employee retiring after 25 years of service at a final salary of $100,000?
Below we compare what this retiree would get under the current plan formula* and then what they would have gotten had the cash balance plan being pushed been in place instead during their working lifetime under both the PERS and PFRS plans.
Public Employee Retirement System (PERS)
Current Plan: $95,314 x 25/55 x 13 = $563,219
Cash Balance Alternative: $192,000
Police & Fire Retirement System (PFRS)
Current Plan: $100,000 x .7 x 16 = $1,120,000
Cash Balance Alternative: $384,000
Under both scenarios retirees would get about 34% of the pension value under the proposed cash balance plan that they now get with the current traditional defined benefit plan.
* PERS assumes high 3-year-average salary and a life annuity normal form of benefit
PFRS assumes final 1-year salary and a J&50%S normal form
The difference in the form of benefit and the later average retirement age typical for PERS retirees accounts for the difference between the PERS and PFRS estimated annuity factors, 13 and 16 respectively.