MEMORANDUM

TO: Members of the Pennsylvania Senate

FROM: Matthew J. Brouillette, Commonwealth Foundation
CC: Members of the Media
DATE: October 5, 2010
RE: Public Pension Reform

As the 2009-10 legislative session winds down and the announcement of the death of HB 2497 may have
been premature, I would like to reaffirm the need for sustainable and comprehensive public pension
reform.

This five-step approach to pension reform is based upon the indisputable need to remove politics from the
public pension system. While the current economic downturn has dramatically increased the unfunded
liabilities in PSERS, SERS, and thousands of other public pension plans, it is the political nature of
defined-benefit pension plans that puts Pennsylvanians in serious financial jeopardy.

The experience in the private sector shows that defined-contribution plans are the only means by which
Pennsylvania can remove politics from the public pension system while ensuring that taxpayer costs are
“current” (paid for as earned), predictable (in the future) and affordable (not exceeding 7% of payroll
after any required employee contributions).

In short, true pension reform must consider the long-term effects and all people (such as SB 566), not
simply short-term effects and a few people (such as HB 2497).

Attached is a summary of what true pension reform looks like, followed by a contrast with “non-reform”
reforms that have failed in both the private and public sectors. These “non-reforms” represent an easier
political solution in an attempt to mollify public employee labor unions, but they create unsustainable
risks and liabilities leading to “Generational Theft.”

Fortunately, the people of Pennsylvania support true pension reform. According to an April 2010 poll by
Susquehanna Polling and Research Company, voters—Democrats, Republicans, and Independents
alike—favor legislation that would place all new government hires in a 401(k)-type retirement plan (such
as SB 566), rather than the defined-benefit pension plans in which government workers are currently
enrolled.

Q: Most government employees - including teachers, state workers, judges, and legislators - receive a pension plan which provides
a guaranteed annual payment upon retirement. There is legislation to move all new government employees to a 401(k) type plan,
similar to what many employees in the private sector receive. Generally speaking, do you favor or oppose this legislation?
Total Favor Total Oppose Undecided/Refused
All Voters 54% 34% 12%
Republican 58% 33% 9%
Democrat 50% 36% 14%
Independent 60% 29% 11%

If you would like additional information or would like to further discuss pension reform with me or Rick
Dreyfuss, our pension expert and actuary, please contact me at 717.671.1901 or at
mjb@commonwealthfoundation.org or Rick Dreyfuss at rcd@commonwealthfoundation.org.