
Roughly five years after Gov. Corbett first began an effort to eliminate guaranteed pensions for future school and state employees, Gov. Wolf today signed a bill that reduces the guaranteed portion of future pensions by about three-eighths (because the pension increases with each year of service by 1.25% of final salary instead of 2%). Alongside this smaller guaranteed pension, future employees will receive a 401(k)-style savings account. If these savings are converted into a second monthly check – an “annuity” – “actuaries” estimate (Table 9, p. 19) that the total retirement benefit for future career employees will be within 16% to 18% of the retirement benefit received by employees under the prior (Act 120) pension plan (enacted in 2010).
In sum, the enacted pension compromise is a smaller cut in benefits than earlier “hybrid” (combined DB-DC) proposals (such as this one with a smaller DB multiplier). Together with Social Security, the new hybrid pension will maintain retirement security for future school and state employees.