Pennsylvania Pensions and Taxes

Pennsylvania's statewide pension plans for public school employees, state workers, legislators, judges and other government employees - the Public School Employee Retirement System (PSERS) and the State Employee Retirement System (SERS) - will require significantly higher taxpayer contributions in the 2012-13 fiscal year and beyond.
 
The following spreadsheets provide a breakdown of these increased pension costs, based on SERS and PSERS latest projections to make them more understandable and tangible for the taxpayer.
 
SERS costs are paid 100% by state taxpayers through taxes such as the personal income, sales, and corporate income taxes. PSERS costs are split with about 54% paid by state taxpayers and 46% paid by school district taxpayers. On average, school district property taxes fall 69% on residential property and 31% on commercial property taxpayers.
 
For illustration purposes, the local property tax increase is represented in a per-homeowner basis to present the impact of these costs to a community. The state costs are presented on a per-household basis. Although the increased costs will be paid through myriad taxes on myriad taxpaying entities, it is ultimately individuals and families-not businesses or corporations-that shoulder the burden of all taxes.

For more details, including projected tax increases for individual Pennsylvania school districts, download the full PDF of Pension Increases 2012-13 or view the embedded file below.

Pennsylvania Pension Increases

The five steps lawmakers should take to address the pension crisis are

1. Establish a unified DC plan for new members
   • Curtails open-ended liabilities
   • Eliminates long-term commitments on behalf
   • of taxpayers
   • SB 566 (2009)
2. Prohibit pension obligation bonds or other postemployment benefit (OPEB) bonds
3. Mandate minimum funding reforms for any newly created liabilities resulting in both pension and OPEB plans
   • For actives - maximum funding period is the average remaining working career of recipients.
   • For retirees - 1-year funding period (no remaining working career).
   • Permit asset averaging of up to 3 years subject to a 90% to 110% corridor test against the market value of assets.
   • No benefit improvements permitted if the result of such improvements causes the funded ratio to fall below 90%.
4. Consider modifying unearned pension benefits (if legal and feasible)
   • Reduced formula
   • Redefinition of eligible earnings
   • Increasing the normal retirement age
   • Curtailing early retirement subsidies
   • Eliminating COLAs and Deferred Retirement Option Programs (DROPs)
5. Consider funding reforms only after prior steps are achieved

Omitting steps 1,2,3,4 is not pension reform.

For an explanation of the causes and implications of the pension crisis, view an online version of Rick Dreyfuss's presentation.