Retirement Plan Reform in Pennsylvania

On May 7th Governor Corbett Released His Public Pension Reform Plan. This Plan and Newly Introduced Bills in the Pennsylvania House and Senate Proposes to Convert Pennsylvania’s Defined Benefit Plan to a 401k Style Retirement Plan. The Bills are Being Introduced in an Attempt to Reduce and/or Eliminate the Funding Shortfall or Unfunded Liability of more than $41 Billion in the Public School Employees Retirement System and the State Employees Retirement System.

The Reform Plan Leaves the Benefits of Current Retirees and Those Benefits Accrued by Pennsylvania’s Employees in the Defined Benefit Plans Alone. It Reduces Future Pension Benefits for Current State and School Employees Starting in 2015.

In a Defined Benefit Plan the Employer (in this case the State of Pennsylvania) Shoulders the Risk of Underperformance of the Investments in the Plan. Plan Sponsors of Defined Benefit Plans Have the Responsibility to Manage the Funding of Such Plans so the Plan is Fully Funded. Defined Benefit Plans Can become Underfunded (as is the case in Pennsylvania ‘s Defined Benefit Plans) When the Plan Sponsor Does Not Make Large Enough Payments to the Plan, Does not Grow the Investments in the Plan at a Rate of Return Great Enough to Pay Future Liabilities or Retirement Benefits, or Shows a Loss of Principal Value. Defined Benefit Plans are Managed to Create Equilibrium Between the Amount of Assets That have Been Accrued and the Amount of Benefits to be Paid Out Both in the Present and the Future. Such Plans are Typically Regulated by the Pension Protection Act of 2006, the Employee Income Retirement Security Act (ERISA) and other Applicable Laws and Regulations. Pennsylvania Has Had Concerns With These Plans Ranging from Issues of Investment Performance Stemming from the Financial Crises, Funding Levels, the Health of Cities and Municipalities In Pennsylvania, Lower Tax Receipts Resulting From Lower Economic Activity and Unemployment and a Myriad of Other Concerns.

Under the Governor’s Reform Plan New State, Teacher and School Employees Would Save for Their Retirement Like any Private Sector Worker in a 401k Style Plan and Would Not Receive a Retirement Benefit Paid by the State of Pennsylvania.

You Can Read Further Details at

The Investment Advisor – Helping Plan Sponsors and their Employees in Pennsylvania