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Legislation Would Change Pension System for New State Employees

Under a new bill proposed by Pennsylvania Senate Majority Leader Dominic Pileggi (R-Chester County), new state employees would get a defined contribution retirement plan, similar to a 401(k), rather than the current defined benefit plan.

"A defined contribution plan is what most people — the overwhelming majority of people in the private sector — have now, and that is where the contributions going in are known but at the end it's going to be subject to some fluctuation depending on what investment strategy you've chosen during your time on the job," said Pileggi Spokesman Erik Arneson.

The sponsors of the proposal believe it will help reduce the future cost of the pension system to taxpayers. The cost of making pension payments is high, but lawmakers can't do a whole lot because they can't change benefits for existing employees, but the lawmakers say something has to be done to bring down costs.

"You'd have to have your head fully buried in the sand not to see the massive pension problems Pennsylvania is facing right now," said Arneson, "and what this does — this is a relatively small, very common sense step to start addressing that problem long-term."

The American Federation of State, County, and Municipal Employees (AFSCME), the union representing state workers, said the change to the system wouldn't fix anything, but rather make the problem worse because no more money would be going into the pension system.

Pileggi acknowledged the plan wouldn't change the fact that the state still has the legacy cost of the state employees who are in the existing pension system.

"This bill is not a total solution but an important part of the solution – one that is achievable, one that's easy for people to understand, and one that is in my view long overdue," he said.

Pileggi added the state is lagging behind the private sector with respect to its preferred type of pension plans.

Senator Pileggi is currently circulating the bill for cosponsors, and several fellow Republicans have signed on. It will be introduced in early June. If approved, the new system would apply only to state employees hired after November 30, 2012.