At its meeting on Dec. 11, the Board of Trustees of the Pennsylvania School Employees Retirement System released its latest projection of increases in the employer contribution rate paid by school districts and the commonwealth. The rate will increase dramatically from now to 2016 and remain high until 2032.
In the past, the General Assembly has taken action to help school districts and the state to avoid unaffordable increases in the employer contribution rate by changing PSERS valuation methodologies. This has been done mainly by re-amortizing PSERS liabilities over longer periods of time and adjusting other factors. While this remains an option for short-term relief, such actions typically lose their effectiveness once the amortization date approaches. This is because the system has never been fixed to deal with long term increases in cost.
Senator Gene Yaw and Representative Glen Grell will be introducing legislation that would transform the PSERS system from a 100% defined benefit system to one that is a hybrid defined benefits/defined contribution system. Because the defined benefit characteristics under this hybrid plan are reduced under the current plan, the proposal would cut the benefit costs to employers. At the same time, the defined contribution characteristics of the proposal would allow members of the system to invest a portion of their contributions in a manner they see fit.
The proposed system would continue to provide a viable pension benefit to school employees. An individual retiring after 30 years of service would receive anywhere from 53% to 63% of the final salary, depending on the performance of their investments and how much they contribute to those investments.
The bill would also reduce the projected increases in the school district portion of the employer contribution by capping those increases at the Act 1 index. The commonwealth would pay for the remainder of the increases over the cap.
A long-term solution to the pension issues that face Pennsylvania’s taxpayers and school districts is the one piece that has been missing from all other pension reform measures. Please join Senator Yaw and Representative Grell in supporting this legislation, which would reduce pension system costs for our future generations.
Senator Yaw can be contacted at (717) 787-3280 and Representative Grell can be contacted at (717) 783-2063. If you have further questions about the proposal, please call the Governmental and Member Relations Department at the Pennsylvania School Boards Association at (717) 506-2460, ext. 3325.