Letter to the Editor

In defense of Pennsylvania’s plan

Your July 24 article on Act 5, Pennsylvania's new pension reform law, "Pennsylvania's hybrid plan seen as falling short," includes assertions that the hybrid plan created by the law "does very little" to address the problem of underfunding. But the article fails to fully account for the significant impact of the steps that policymakers have taken to date, or to acknowledge the unique factors that created the state's pension funding challenge in the first place.

According to an analysis performed by the state's Independent Fiscal Office, the reforms will save the state $5 billion to $20 billion over 30 years, depending on investment performance. Only five other states have taken comparable action to manage investment risk. In addition, Pennsylvania has dramatically increased annual contributions to shore up the pension system over the past five years — from $1 billion to $5 billion. And the reforms go a step further by requiring that any savings go toward paying down the unfunded liability. This is the biggest turnaround in contribution adequacy nationwide, placing Pennsylvania on a path to move from 49th in the nation to the top 25 for making pension contributions.

Yes, full funding of the state's pension promises will take decades — which is true of many other states as well. But the largest source of Pennsylvania's legacy debt is the unfunded benefit increases from the early 2000s, which cost the state an estimated $40 billion in today's dollars — equal to about 60% of the current unfunded pension liability. Considering the impact of those benefit increases on the health of the system today, Act 5 is a significant bipartisan reform that demonstrates the concerted effort of policymakers to address the problem while preserving a path to retirement security for valued public workers in the state.

Greg Mennis

Director, Public sector retirement systems project

The Pew Charitable Trusts