Pennsylvania Pension Reform (PPR) – (1) Introduction

Based on a study of depletion dates Pennsylvania state retirement systems area fairly close to New Jersey in negative cash flow and remaining assets:

But whereas New Jersey politicians dawdle and deceive (primarily themselves), those in Pennsylvania just passed a pension reform bill and this is how it was summarized by the press:

Most state employees and all school employees hired after Jan. 1, 2019, will get half their pension benefits from the existing defined-benefit plan and half from a new 401(a) defined-contribution benefit plan, according to Pensions & Investments. Employees in high-risk jobs like police and corrections officers will be able to retain their defined-benefit plan.

Employees hired after Jan. 1, 2019, will have the option of taking all their benefits from the 401(a) plan. Current employees will also be able to opt into the hybrid arrangement.

The new hybrid arrangement will cut management fees by a combined $3 billion, as well as lowering the taxpayer’s pension risk by about two-thirds, according to a report from the state’s Independent Fiscal Office.

That report runs 132 pages with the second page containing the crux:

Employer Contributions For FYs 2018-19 through 2049-50, the proposal is projected to reduce employer contributions by $1.4 billion on a cash flow basis and $319 million on a present value basis.

For a system that will likely run out of money by 2034 the thrust of this ‘reform’ is to reduce those onerous employer contributions while keeping employee contributions at similar, if not higher, levels in part by confusing  those new participants impacted. This series series will wade through the jargon looking to explain the choices, motivations, and likely outcomes.

27 responses to this post.

  1. Posted by Anonymous on June 10, 2017 at 11:30 pm

    Don’t know the law in PA, BUT unless you’re in GREAT shape now (valued under PRIVATE Sector Plan methodology) reforms of the type described above for PA ….limited to new workers) …. are woefully insufficient.

    What’s needed (notwithstanding laws, regs, constitutional provisions, etc.) are 50+% reductions in the now ludicrously excessive pension accrual rate for the future service of all CURRENT workers.

    Reply

  2. Posted by Anonymous on June 11, 2017 at 12:27 am

    So their pensions will be only 2.31 times greater.

    Reply

    • Posted by Anonymous on June 11, 2017 at 1:01 am

      For safety workers yes. If they were halved (in “value”, which is the composite of the generous “formulas” and the generous “provisions” … such as VERY young ages are which unreduced pension can now be collected) they would still be over twice the value of the pensions typically received by comparably situated Private Sector workers.

      That’s why I stated “50+%”. For safety workers to have pension no greater than their Private Sector counterparts, the “value” must come down by over 75%. Of course that doesn’t mean that the MONTHLY ANNUITY must be reduced by 75%. A more appropriate pension structure would be a per-year-of-service “formula factor” no greater than 1.5%, a full actuarial reduction of 5% per year of age for retirement before age 62, and no reinstatement of COLAs under ANY circumstances.

      I bet that sound horrible to you……… but it’s typically of the BETTER Private Sector pensions (for the lucky few that still get DB pensions).

      EQUAL…. but NOT better.

      Reply

      • Posted by Patrick Whalin on June 11, 2017 at 3:57 pm

        I retired at 54 with 50% pension. Your plan would reduce my pension by 5% per year for each year under 62, or 40%? Wow. If your plan were enacted, many would just “show up” and do very little. That would clog up the opportunity for advancement for younger workers causing them to find other jobs at earlier ages. Others would find reasons to “get fired”.

        I suggest we raise the sales tax by 2% and dedicate that money to the Pension Funds.

        Reply

        • Posted by PS Drone on June 11, 2017 at 8:32 pm

          Pension benefits, including those payable by public sector plans, should never have been payable before age 65 (like SS). The “early” SS retirement at age 62 signed into law by JFK (to KTA of Teachers and other public employees) should be eliminated. People are living to age 100. Do you think it makes arithmetical sense for you to collect benefits for 46 years? How many years did you work? 25? 30? One needs to work and accrue benefits for 40 to 50 years in order for any semi-logical defined pension benefit plan to make any economic sense. And even then no benefit payments can be paid by such a plan before age 65 (66 now in SS and going up).

          Reply

        • Posted by Anonymous on June 11, 2017 at 8:52 pm

          If you retired at 54 with a 50% pension, you only worker for 20 years (likely as a NJ Police Officer).

          Why should you “expect” a substantive pension for that combination of age and service when a career in the Private Sector is normally 35+ years and retiring at 65?

          With 20 years at 54, you started at 34. You should have have work-experience for at least 10 years BEFORE starting at as a Police Officer, and it certainly is not unreasonable to feel that you should have continued working in a job after retiring at age 54 …… in BOTH of which you should have substantively saved and invested as is expected of Private Sector workers (who wish to have any reasonably comfortable retirement).

          My point is that 20 year is NOT ENOUGH Public Sector work for you to assume that it alone should provide for your retirement, and if you didn’t save and invest before and after your (rather short-duration) Public Sector work that should be YOUR problem, NOT the Taxpayers.

          So to answer your quest directly, YES your pension earned over your SHORT career SHOULD BE actuarially reduced by 5% for each year that you retired before age 62, noting that for Social Security calculations, early retirement results in a reduction of over 6% for EACH year you retire before your NRA (Normal Retirement age) which for today’s retirees is age 66.
          *****************************************

          And quoting ….

          “If your plan were enacted, many would just “show up” and do very little. ”

          Yes, only in PUBLIC Sector employment can they get away with that ….. very unfortunately. If you tired that is a PRIVATE Sector job you would be fired forthwith ……… which is what should happen to Public Sector workers who do so.
          *********************************************

          And quoting ……………

          “I suggest we raise the sales tax by 2% and dedicate that money to the Pension Funds. ”

          Of course you do. Always looking keep your now GROSSLY EXCESSIVE, unnecessary, unjust, unfair to taxpayers, and clearly unaffordable pension (AND benefits) and simply stick it to the Taxpayers to do.

          Why am NOT surprised ?

          ***************************************
          **************************************

          What makes you think that you are so “special” that you believe you are entitled to a pension, the taxpayer-paid-for share of which has a value upon retirement over FOUR TIMES GREATER than that of a comparably situated (in work responsibilities, wages, age at retirement, and years of service) Private Sector worker?

          Reply

          • Posted by Anonymous on June 11, 2017 at 9:45 pm

            Several issues here….The State of New Jersey is the largest employer in the State. If you work for a private fortune 100 company in New Jersey (think Johnson & Johnson, Merck, Honeywell, Prudential Financial, etc..) the benefits they receive are equal to or better than those of state workers! You must compare apples to apples. Sure, a career at McDonalds or a Car wash (Private Sector) will absolutely result in a much smaller pension than that of a career state worker. Duh! But the state pensioneer works for the equivalent of the #1 position of the fortune 100 companies!

            Also, I worked for 30 years; 30/55 = 54.5% (less 3 % for retiring before age 55 = 53.5% of final salary). After 30 years of working the job, I think that’s a reasonable amount of time before retiring. Don’t you?

            And yes, of course, I save using deferred Comp (max possible) and other investments. Why are you so angry that I planned it out so well and can afford to retire and live comfortably? And by the way, I do work now…but I do it for fun!

          • Posted by Anonymous on June 11, 2017 at 10:24 pm

            Quoting Anonymous …

            ” If you work for a private fortune 100 company in New Jersey (think Johnson & Johnson, Merck, Honeywell, Prudential Financial, etc..) the benefits they receive are equal to or better than those of state workers!”

            While Police pensions are considerably greater, the smaller NON-SAFETY WORKER Public Sector pensions in NJ are materially greater than those of the few NJ employers that haven’t already frozen such DB pensions…. including NJ’s largest employers.

            I doubt that you could find ANY (yes ANY) single-employer (corporate-sponsored) DB pension Plan that does not include AT LEAST a 4% of pay reduction for each year of age that you retire before age 60…… and that combination is the richest I have ever heard of (far more generous than the more commonly-applied early retirement adjustments).

            Simply using that (the BEST available in the Private Sector), your pension (for retirement at age 54) would have been reduced by 4%x(60-54) =24% as opposed to the minuscule 3% reduction that was actually applied.

            There is no “justification” for the FAR better deal granted Public Sector workers. You have them simply because your Unions have been so successful at BUYING our Elected Official’s favorable votes on pay, pensions, and benefits with BRIBES disguised as campaign contributions and election support.

            Beware, the Taxpayers are fed-up and won’t be funding the HUGE shortfall in NJ’s Plans. Phil Murphy (our likely next Governor) has big Plans …. favorable to the Unions ……. but they’re all going to fall apart when he finds that it’s IMPOSSIBLE to pay for the ridiculous “promises” he is making simply to lock-up the Union vote.

          • Posted by S Moderation Douglas on June 12, 2017 at 12:13 am

            Quoting TL…

            “Why am NOT surprised ?”

            LOL!!!

            More internet math. And assumptions. Some times you have to make assumptions. Even if actual data is available.

            Yes, Patrick, you planned well, congratulations.

            And you are correct about the fortune 100 companies, especially for the higher educated workers.

            The biggest dichotomy in employee pay and benefits is not between public and private; it is between large employers and small.

          • Posted by Anonymous on June 12, 2017 at 1:19 am

            Quoting SMD ……..

            “And you are correct about the fortune 100 companies, especially for the higher educated workers.

            The biggest dichotomy in employee pay and benefits is not between public and private; it is between large employers and small.”

            SMD, not surprisingly, you’re correct about neither………..

            (1) You can’t carve out a small subset of workers to try to prove your (invalid) point. Public Sector pensions are ALWAYS multiples greater in value upon retirement than those granted COMPARABLE Private Sector workers, and

            (2) The PROPER comparison is indeed between Public Sector workers and Private Sector Workers ….. because right now, the latter is being told that THEY are responsible for 80% to 90% of the total cost of the MULTIPLES-GREATER PUBLIC Sector pensions.

          • Posted by S Moderation Douglas on June 12, 2017 at 1:33 am

            “Why am NOT surprised ?”

          • Posted by Anonymous on June 12, 2017 at 2:07 am

            Give it up SMD ………

            It’s above the grade level of light bulb changers.

          • Posted by S Moderation Douglas on June 12, 2017 at 6:32 am

            Quoting TL… June 10, 2017

            “For every 1 job where a Public Sector worker is found to be compensated less than their Private Sector counterpart, there will be 50 jobs where Public Sector workers are found to be overcompensated…”

            Source?

          • Posted by Anonymous on June 13, 2017 at 10:32 pm

            Rhetorical question ?

  3. Posted by Anonymous on June 11, 2017 at 6:55 am

    Curious as to how, if at all, this will alter PA depletion date given the historical lack of employer funding to due political pandering!

    Reply

    • Posted by Anonymous on June 11, 2017 at 9:26 pm

      It’s VERY common for articles such as this to quote an estimate of the “savings” that will result for a proposed set of changes…….such as this one in the above-linked article:

      “By 2037, analysts predict the state will spend an estimated $427 million less for Medicare Advantage plans than if the current contract were to continue.”

      How many currently retiring Private Sector workers get ANY (yes ANY) employer-subsidized retiree healthcare benefits today ? If the Taxpayer don’t get it from THEIR employers, why should the Taxpayers pay for it for Public Sector workers?

      What you RARELY EVER EVER EVER see is an honest comparison of the “generosity” of the downward-revised Plan to the “generosity” of the TYPICAL Plans offered COMPARABLE Private Sector workers.

      Why ? Because even AFTER the proposed reduction, the Public Sector Plans usually REMAIN multiples greater in value upon retirement than those granted Private Sector workers.

      Our self-interested Taxpayer-betraying Elected Officials simply do not have the stomach to tell the Public Sector unions that GOING FROWARD, it’s a new day and a new deal, and you will ONLY get EQUAL TO, but not more than the Taxpayers typically get.

      Reply

  4. Posted by MJ on June 12, 2017 at 7:23 am

    This is all complete and utter nonsense…No one, private or public should be able to collect any pension or retirement savings until the age of 65 just as SS and most 401K plans are set up. If one chooses to retire at 55 or 58 or 62 then pay for your own health benefits and fund your retirement until eligible at 65. the only exception I can see is for police working in places like Newark, Philadelphia, Camden, etc…..they deserve every penny of their pay and retirement. Bedroom community cops,, come on…..I know 40 year olds trying to pass the police exams…really???

    Reply

    • Posted by Anonymous on June 12, 2017 at 8:13 am

      Twenty and out. At any age. Fifty percent pension plus healthcare. It’s good enough for U.S. military and NYC cops… and sanitation workers.

      Reply

      • Posted by Anonymous on June 12, 2017 at 10:21 am

        Oh boy let the exception justifications begin!!

        Reply

      • Posted by S Moderation Douglas on June 12, 2017 at 11:14 am

        Go figure. One source said only “uniformed” sanitation workers get twenty and out. I think it applies to transit workers also, or did. They may have changed it for new employees.

        Like everywhere else, they use police and fire pensions as examples of “excess”, then they exempt police and fire from the reforms.

        Reply

  5. Posted by MJ on June 12, 2017 at 12:16 pm

    SMD this is one of the most sensible things I have read in your posts to date

    Reply

    • Posted by Anonymous on June 12, 2017 at 3:26 pm

      It’s particularly problematic that Safety workers (and usually judges) are typically exempted from pension reform proposals …… given that THEIR pension are the MOST generous and hence the most egregious.

      The general Public is enamored with Police & Firefighters, but doesn’t understand the ENORMOUS cost of the pensions that they have been “promised”. The word “Rip-Off” doesn’t even begin to do it justice.

      Here how I’ve stated it …………

      While most Private Sector workers would agreed that simply due to the nature of Police (and Fire) work, pensions somewhat greater than those of COMPARABLY situated Private Sector workers is justified, and if you solicited such Private Sector workers as to the percentage by which Safety worker pension should be greater, I’d bet that many would say 10%, 25% and some even 50%.

      But NOT ONE would come even remotely close to the ACTUAL percentage by which safety worker pensions ROUTINELY exceed (in value upon retirement …. taking into account not only the $ monthly payout, but the HUGE incremental value of being able to collect an unreduced pensions at a MUCH younger age) the pensions granted COMPARABLE Private Sector workers ……………. over 400% !

      Reply

  6. […] Pay-as-you-go status for this plan in 2032 instead of 2034 (unless we get more ‘reforms’ that move the date up again). […]

    Reply

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