Right Hooks

Pennsylvania's Plan to Address Pension Debt

The Keystone State's Democrat governor signs a bipartisan bill designed to address the state's looming pension disaster.

Political Editors · Jun. 15, 2017

A bill that will enroll new state employees in a “hybrid” retirement plan was passed with heavy bipartisan support and signed into law on Monday by Pennsylvania’s Democrat Governor Tom Wolf. In an age of increased polarization and partisan politics, it seems surprising to see agreement on an economic issue transcend party lines. But this may be a case of a problem getting so bad that politicians finally work toward actually dealing with it rather than simply angling to secure their own positions of power.

Pennsylvania finds itself in such a situation with its state pension program. With estimates as high as $70 billion in liabilities, the Keystone State’s pension program is in as bad a shape as any in the nation. Worse, it wasn’t that long ago that the state was in the black with a pension plan sitting on a surplus. Unfortunately, state leaders got greedy and began expanding benefits while reducing payments, and the results were all too predictable: unaffordable debt.

So after years of kicking the can down the road, and witnessing disastrous examples such as places like Detroit and Stockton, California, as well as other states in dire straits, the Pennsylvania state government passed the retirement bill which effectively works like a 401(k). This allows the government to put up smaller defined benefits that employees can then contribute to. This plan does not entirely solve the problem, but it’s a definite step in the right direction toward reining in out-of-control government spending.

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