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Rescuing Pennsylvania’s Public Pension System

Rescuing Pennsylvania’s Public Pension System. Plan by State Representatives Mike Tobash (R-Schuylkill/Berks) Warren Kampf (Chester/Montgomery). An Overview of the Problem. Pennsylvania faces a nearly $50 billion pension debt that will take decades to overcome.

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Rescuing Pennsylvania’s Public Pension System

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  1. Rescuing Pennsylvania’s Public Pension System Plan by State Representatives Mike Tobash (R-Schuylkill/Berks) Warren Kampf (Chester/Montgomery)

  2. An Overview of the Problem • Pennsylvania faces a nearly $50 billion pension debt that will take decades to overcome. • This massive debt was caused by: • Underfunding. • Declines in the markets. • Increases in benefits.

  3. Why Continuing with the Status Quo is Unacceptable • Proactively working to protect current employee benefits and to eliminate the possibility they will be in jeopardy in the future. • 60,000 jobs could be at risk. • Increase in employer contributions from $3.4 billion to $6.6 billion. • The state’s bond rating is in jeopardy of being lowered again.

  4. Best Solution • Adopt a pension reform plan that seeks to reduce the costs and shift the risk for both the SERS and PSERS pension systems from taxpayers. • Rep. Tobash is sponsoring an amendment to Rep. Kampf’s House Bill 1353 to achieve this.

  5. How Would Savings Be Achieved? • New employees entering the state systems would be enrolled in a combination of 401(k) type and traditional pension (hybrid) plan.

  6. Hybrid Pension Plan Highlights • Addresses STEP ONE of meaningful pension reform by STOPPING THE BLEEDING from within the current system. • Over a 30-year projection period, this plan is estimated to save between $11 billion and $15 billion.

  7. Plan Details Defined Benefit (DB) Defined Contribution (DC) • 2 percent accrual rate. • Employee contribution of 6 percent. • Lifetime final average salary, not to exceed $50,000 (indexed 1 percent annually). • DB is fully earned after 25 years of service. • Participants are vested after 10 years of service. • DB payments cannot be collected prior to age 65 without penalty. • DB payments cannot be collected prior to age 60 without penalty for those not covered by Social Security. • No different classes of service. The only distinction between members and levels of benefits is if the position is covered by Social Security. • Employee contribution of 1 percent and employer contribution of 0.5 percent on all compensation up to $50,000. • Employee contribution of 7 percent and employer contribution of 4 percent on all compensation more than $50,001. • Employee contributions vest immediately and three-year vesting of employer contributions. • No loans or in-service distributions from the DC plan. • Portability, withdrawal penalties, etc., per IRS rules. • Additional DC employer contribution of 6 percent for those employees not covered by Social Security.

  8. Points of Clarification This plan is proactively designed to protect the benefits current employees have earned. Those who take a leave of absence will not lose their benefits. All new employees would be treated the same under the new plan. No one person is responsible for creating this plan.

  9. Protecting Current Employee Benefits • Simply put, benefits of current employees will NOT change as a result of this plan.

  10. Leave of Absence • Rules regarding maternity or sick leave, vacation, authorized leave of absence without pay, disability, changing positions or districts will NOT cause a break in service or require employees to start a new plan. • The ONLY way a current employee’s plan would not continue as is, would be if he or she quits, or the employment is terminated.

  11. Equal Treatment • Under the new plan, all new employees entering the system would be treated the same. • Teachers, legislators, judges, clerks, etc., will all be in the same plan, receiving the same benefits.

  12. Collaborative Plan • This plan has been developed through testimony held by many stakeholders after hearings with the Public Employees Retirement Commission in 2012. • This is not the work of any one person, agency, or entity.

  13. Contact Information Rep. Tobash Rep. Kampf • Email: MTobash@PAHouseGOP.com • Capitol Office4B East WingPO Box 202125Harrisburg, PA 17120-2125Phone: 717-260-6148 • District Office988 East Main StreetSuite ASchuylkill Haven, PA 17972Phone: 570-385-8235 • Email: WKampf@PAHouseGOP.com • Capitol Office422 Irvis BuildingPO Box 202157Harrisburg, PA 17120-2125Phone: 717-260-6166 • District Office42 East Lancaster Avenue, Unit APaoli, PA 19301Phone: 610-251-2876

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