PSERS

Rep. Glen Grell

87t h Legislat ive Dist rict – Cum berland Count y
 Pennsylvania’s def ined benef it
pension plans (PSERS and SERS)
and m unicipal pension plans are
experiencing f inancial
dif f icult ies, w hich is t hreat ening
t heir f ut ure sust ainabilit y.
 Sept em ber 30, 2009 Snapshot
 279,000 act ive em p lo yees
 177,000 an n u it an t s
 Net Plan Asset s - $46 Billio n
 Hig h -Wat er (2007) - $67.5 Billio n
 Benef it s increased in 2001
 Mu lt ip lier in cr eased t o 2.5 p er cen t .
 Vest in g p er io d r ed u ced f r o m 10 t o 5
year s.
 Tw o m ajor recessions. Last year,
ret urns w ere dow n 26 percent .
 Low em ployer cont ribut ion rat e.
 Fr o m 2000 t o 2009, em p lo yer s p aid 3%
t o 4%.
 Rat e w as 0 percent in o n e year .
 Em p lo yees co n t r ib u t e b et w een 6% an d
7.5%.
 Act 40 of 2003 m asked t he problem .
 Act u ar ial sm o o t h in g .
 Subst ant ial unavoidable increases in
em ployer cont ribut ions.
 PSERS m ost recent valuat ion – 79%
f unded.
 (79 cen t s f o r ever y d o llar o w ed )
 In t he 2010-11 f iscal year, em ployer
cont ribut ions w ill increase f rom 4.78%
t o 8.22% of payroll.
 In t he next f ew years, t he increase
could jum p t o nearly 30 percent and
rem ain at t hat level f or m any years.
 Called a “ sp ike” – r eally a p lat eau .
 Project ed Em ployer Cont ribut ions (in %)
40

35 33.6
32.09
30 29.22

25

20

15
8.22 10.59
10
4.78
5

0
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Increase f unding f or t he syst em – “Just
Pay More”
 In cr ease sch o o l d ist r ict co n t r ib u t io n s
 In cr ease t h e st at e’s co n t r ib u t io n
 In cr ease in vest m en t r et u r n s (im p r o ved
m ar ket co n d it io n s)
 In cr ease em p lo yee co n t r ib u t io n s
 In ject o n e-t im e f u n d (f ed er al st im u lu s
d o llar s)
 Pen sio n Ob lig at io n Bo n d s (POB)
Reduct ion of Liabilit ies
 Ar t icle 1, Sect io n 17 o f t h e PA
Co n st it u t io n p r o h ib it s ch an g in g p lan f o r
cu r r en t m em b er s.
 Ch an g e p lan f eat u r es f o r n ew h ir es
 Red u ce t h e m u lt ip lier f r o m t h e cu r r en t 2.5
p er cen t .
  In cr ease t h e vest in g t o 10 year s (cu r r en t ly 5
year s).
 Pr o h ib it m em b er lu m p su m w it h d r aw al at
r et ir em en t .
Cr eat e a n ew p lan f o r n ew h ir es.
 Def in ed b en ef it
 Def in ed co n t r ib u t io n
 Hyb r id
 Def erral of Liabilit ies
 Alt er act u ar ial m et h o d s an d f o r m u las
 Im p o se r at e sp ike co llar s
 Su g g est ed b y Go v. Ren d ell in 2008.
• Co m p ar ab le t o elect r ic r at e cap s
• Leg islat io n n ever in t r o d u ced
 Ren d ell – 2010
• “ Fr esh St ar t ”
• Ph ase In
 No t m u ch in t er est in t h e Gen er al
Assem b ly o r f r o m t h e Go ver n o r t o t alk
ab o u t t h is issu e.
 Ho u se Rep u b lican Task Fo r ce w o u ld
an alyze an d in vest ig at e r easo n ab le an d
f iscally so u n d so lu t io n s.
 Co n ven e p u b lic h ear in g s w it h
ed u cat o r s, sch o o l ad m in ist r at o r s, sch o o l
b o ar d m em b er s an d t axp ayer s.
 Ho n o r exist in g o b lig at io n s.
 St o p t h e b leed in g – scale b ack f o r n ew
h ir es.
 Pr o vid e r et ir em en t secu r it y – at t r act
q u alit y t each er s.
 Req u ir e ap p r o p r iat e em p lo yer
co n t r ib u t io n s.
 Pr ep ay f u t u r e en h an cem en t s.
 Use f in an cial t ech n iq u es t o ease t h e
sp ike.
 Ho u se Bill 2135 – p r o p o ses a lo n g -t er m
ap p r o ach an d o p en s u p d iscu ssio n s.
 Co m m it m en t t o n o t af f ect cu r r en t
m em b er s an d r et ir ees.
 NEW HIRES ONLY – cr eat e a h yb r id p lan
t o co m b in e t h e b est f eat u r es o f a
d ef in ed b en ef it p lan an d a d ef in ed
co n t r ib u t io n p lan .
 Guarant eed years of service m ult iplier
of 1%.
 Wo r k 35 year s, ear n 35% o f f in al aver ag e
salar y.
 Em ployee’s cont ribut ion w ould be
reduced t o 3.25% (current ly 7.5%).
 Increase vest ing f rom 5 t o 10 years.
 Em ployee’s cont ribut e 3% of salary
 Em ployer cont ribut es 2%
 Funds w ould be invest ed am ong a
m enu of opt ions w it h PSERS
 Accum ulat e balance paid out at
ret irem ent (or annuit ized)
 Will not renege on com m it m ent s t o
ret irees and current em ployees – NO
current t eacher or ret iree w ould be
af f ect ed.
 No band-aid approach.
 Cannot cont inue t o ignore t he problem .
 House Bill 2135 provides a solut ion t o
long-t erm sit uat ion.
 Governor’s proposed f resh st art rat e
collars provide phase in.
 Treasurer McCord’s ideas on POBs m ake
m ore sense.
 Early ret irem ent incent ives m ay be
possible if new hires begin at low er
salaries and at low er pension cost level.
 Sm oot hing and act uarial t inkering w ill
lessen t he im pact w it hout running up a
large bill.
 Qu est io n s?
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w w w .leg is.st at e.p a.u s - Ho u se Bill 2135