As many Pennsylvania state employees return to work today after the New Year’s holiday, they will be returning to a new retirement benefit system.
Act 5 of 2017 goes into effect today. The law switches most new state employees from their traditional guaranteed pension to a retirement plan similar to the 401(k) used by most private companies. New employees can also opt for a hybrid program that combines aspects of both the traditional pension and 401(k) savings plans.
The pension portion of the hybrid options, however, does feature a lower annual benefit accrual rate than previously offered.
Not everyone on the state’s payroll will be seeing the change, at least not right away.
Dan Egan, spokesman for the Pennsylvania Office of Administration, said current state employees have the option to stay with their existing plan or switch over to the new system.
“Currently there is a window where state employees such as myself can opt into one of these plans if we so choose,” he said.
Anyone hired today or after, however, would need to choose between the new options.
There are some exceptions to Act 5. New law enforcement personnel such as corrections officers and state troopers will still be allowed to enroll in the traditional pension.
Newly re-elected lawmakers would be considered existing employees.
Also, changes won’t be made to Pennsylvania school employee’s retirement plans until July 1.
The pension reform was aimed at reducing the state’s risk for cost spikes in its pension system by shifting the risk to employees and to save money on the state’s retirement benefits responsibilities.
Pennsylvania currently has more than $70 billion in unfunded liability in its pension system.
State Rep. Michael Schlossberg, D-Allentown, said that the new plans won’t provide major cost savings, but will help shield the state from the shifts in the stock market, which led in part to the debt the state finds itself in.
“It’s a necessary step in the right direction in the long term to get our pension system back to a healthy place,” he said.