Pension Reform

While pension “reform” was back on the table for consideration alongside the 2016-17 state budget, the issue was kicked to a conference committee and is expected to be revisited this fall.

The House and Senate have very different plans for pension reform. The House plan is focused entirely on new employees hired on or after July 1, 2018, and while the Senate plan originally included some small changes to current employee benefits (making lump sum withdrawals actuarially neutral and expanding shared gain/risk provisions), it is not likely that any future Senate plan will include changes to the benefits of current employees.
 
Earlier this legislative session, the Senate focused their efforts on shifting to a side-by-side hybrid pension plan for new employees. The side-by-side hybrid model would create a Defined Benefit (DB) and Defined Contribution (DC) plan for each new employee with generally static employee and employer contribution rates for each plan for every dollar of an employee’s salary (see table below). Under the Senate-approved pension plan, the multiplier for the DB plan is 1.
 
The House plan is a stacked hybrid pension plan, which also creates a DB and DC plan for each new employee; however, the amount going into each plan depends on how much the employee earns above a $50,000 threshold, (the threshold will increase by 3% annually). This means that the employee and employer contribution rates may change over the course of the year as an employee reaches the salary threshold (see table below). Under this pension plan, the multiplier for the DB plan is 2 (up to 25 years of service).
 
 

  Side-by-Side Hybrid Plan Stacked Hybrid Plan
DB Employee Contribution
  • 4% contribution on all salary
  • 6% contribution on first $50k for first 25 years of service
  • 0% contribution on salary above $50k/all salary after 25 years of service
DB Employer Contribution
  • Actuarially determined contribution
  • Actuarially determined contribution rate on first $50k for first 25 years of service
DC Employee Contribution
  • 3.5% contribution on all salary
  • 1.5% contribution on first $50k for first 25 years of service
  • 7.5% contribution on salary above $50k/all salary after 25 years of service
DC Employer Contribution
  • 2.5% contribution on all salary
  • 0.5% contribution on first $50k
  • 4% contribution on salary above $50k/all salary after 25 years of service
 

Other Pension Reform Information
Past Pension Reform Efforts
During the 2013-14 legislative session, the General Assembly dealt with 2 main proposals, the first of which, proposed by Representative Mike Tobash, was a hybrid pension proposal that would maintain a defined benefit plan for the first $50,000 of an employee's wages for the first 25 years of service  and creates a defined contribution plan for employees that have more than 25 years of service and/or more than $50,000 in wages. For the defined benefit portion of the plan, the employee contribution rate would be 6% and the employer contribution rate would be the PSERS rate. For the new defined contribution piece of the plan, the employee contribution rate would be 1% for the first $50,000 of wages for the first 25 years of service and 7% for wages above $50,000 or service after 25 years. The employer contribution rate would be 0.5% on the employee's first $50,000 of wages for the first 25 years of service and 4% on wages above $50,000 or service above 25 years. The plan would go into effect for all new employees hired after July 1, 2015 and would not change the benefits of any current employee or retiree.The Public Employee Retirement Commission recently released their actuarial note on the proposal, which estimated that the savings generated by the proposed legislation to PSERS would range from approximately $3.5 billion to $7.2 billion over 30 years.
 
A competing plan in the House was the "3 buckets" plan offered by Representative Glen Grell. The Grell proposal would create a cash balance plan for all new employees and require the state to issue general obligation bonds to begin to address a portion of the unfunded liability existing in the systems. The proposal would also allow current employees to elect changes to the calculation of their benefits, including using a 5 year final average salary and an actuarially neutral Option 4. The plan would go into effect for all new employees hired after July 1, 2015 and would not change the benefits of any current employee or retiree. The Public Employee Retirement Commission recently released their actuarial note on the proposal, which estimated that the savings to PSERS generated by the proposed legislation would range from approximately $19.8 billion to $26.8 billion over 30 years.
 
Other Pension Information