It seems that every few months Pennsylvania’s famously underfunded public pension systems receive some new low ranking or grade. The latest reproach takes issue with the way pension payouts are determined – based on age and years worked.
A report by the nonpartisan Urban Institute calls the rules setting state retirement benefits arbitrary. It restricted its analysis to employees hired in 2013 who will receive pension benefits through the State Employee Retirement System, or SERS:
Under SERS, 76 percent of all state-financed pension benefits go to the 25 percent of employees receiving the most benefits. The remaining 75 percent of the workforce receives only 24 percent of all state-financed benefits. The top 5 percent receives 22 percent of all payments.
The report calls the system a bum deal for short-term workers and people who want to work past the retirement age:
Which employees benefit most from the plan depends arbitrarily on when they joined and how long they worked. For example, age-25 hires who separate after 34 years of service receive about $45,000 from the plan, net of their own required contributions, but receive $250,000 if they stay one more year.
“There is this sense out there that traditional defined benefit plans are the best type of retirement security that workers can have,” said Richard Johnson, a senior fellow with the Urban Institute. “For some people, that’s true, but it’s not true for everyone.”
There’s also the question of what “human resource goals” the pension rules achieve, Johnson said. Are workers who stay with the state for 35 years really more productive than people who stay on for just 25 or 30 years?
“I more get the sense that these rules have just sort of evolved over time, that there hasn’t been a lot of thought put into the kind of incentives that they create for workers,” Johnson said.
Pension benefit rules are set in law by the General Assembly.
The report also knocks Pennsylvania for not putting enough money into its state employee retirement fund, which was only 59 percent funded in 2013.
State lawmakers have spent a lot of time in Harrisburg recently debating pension changes for both state and school employees. But most proposals would take relatively small chunks out of what the state owes in pension benefits. Legislative support for those proposals ranges from insufficient to nonexistent.
The Urban Institute report did not consider the state’s Public School Employee Retirement System, the larger of the state’s two pension funds.
