Senator Yaw Proposes Legislation to Hold Down School Pension Costs

(HARRISBURG) — State Senator Gene Yaw (R-Lycoming) joined school officials and legislators today at a Harrisburg news conference to emphasize the need to address a looming school pension crisis that could mean higher property taxes for state residents.

“Pension funding liability is going to have a serious and wide-ranging impact on school districts and taxpayers for years to come – and we have to find solutions now to address the problem,” Yaw said.  “A pension bump in 2001 and the current economic downturn have combined to put us in a very difficult position as pension investment earnings have fallen.”

To help hold down the future costs for the Public School Employees Retirement System (PSERS), Yaw is introducing legislation that would modify the current pension system to make it more like a traditional 401-K plan.  The legislation would require new system members to contribute a portion of their earnings into the system in accordance with their employers.  It would not affect those already in the pension system.

Yaw explained that public employee pensions are very different from those offered by private companies in that they are a guaranteed or “defined benefit.”   That means that when those pension funds face large losses, as they did last year when the recession was sinking 401(k) plans across the nation, taxpayers must make up the difference, no matter the cost and the effect on their ability to pay.

Yaw’s legislation would move away from the expense of a total defined benefit system. It would maintain some characteristics, but would also introduce a defined contribution element to the system, which would give employees more control over their contributions by choosing how they want to invest them.

The new hybrid system will affect new members of the system, those joining after July 1, 2010.

“The key to this solution is that while it reduces costs to taxpayers over the long term, it still maintains sufficient retirement benefits to the system’s members,” Yaw said.

It is estimated that under this system, a person who retires after 30 years of service and contributes the minimum 3% of salary to the defined contribution program, would receive a retirement benefit equal to 53%-63% of final salary, depending on the performance of the market.  Under the current system, a person who retires with 30 years of service receives approximately 70% of salary.

Yaw said the Senate Finance Committee today held a public hearing on school pension issues, and all those testifying agreed that something must be done to avert the growing pension crisis.

“I look forward to working with all my colleagues to find a workable and manageable solution to this tough problem,” Yaw said.  “My legislation is a good first step in holding down costs so that taxpayers aren’t left footing the bill.”

Contact: Rita Zielonis

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