After many fits and false starts to pension reform, Pennsylvania's governor has a signed a measure that establishes a hybrid defined benefit/defined contribution plan for new state employees.
Although some industry observers believe the new law is a step in the right direction, several others said the switch to a hybrid DB/DC plan does little — if anything — to solve the state's core underfunding problem.
"What's notable about this plan design change in Pennsylvania is that it does very little to address the underfunding," said Alex Brown, research manager for the National Association of State Retirement Administrators, Washington. "Most of what this change does is address the composition of risk between the participating employers and the members."
Mr. Brown added that most of the cost savings won't accrue for years because the change only affects new hires at the $51.3 billion Pennsylvania Public School Employees' Retirement System and $26 billion Pennsylvania State Employees' Retirement System, both based in Harrisburg. The two plans had more than $56 billion in unfunded liabilities as of June 2016.
The bill, signed June 12 by Gov. Tom Wolf, will change retirement benefits for most state employees and all school employees hired after Jan. 1, 2019.
Most new employees will be put into the hybrid retirement system, receiving half of their benefits from the current taxpayer-funded DB plan and half from a 401(a) plan. Workers in high-risk jobs, such as state police and corrections officers won't be affected by the changes.