PENSION CRISIS: Brief history of PSERS and SERS
1917: Pennsylvania Public School Employees' Retirement Act becomes law.
1919: The law goes into effect with the merger of 13 school district retirement systems into the new statewide system. PSERS membership is 37,503.
1923: Act 331 is signed into law, establishing the State Employees' Retirement System.
1924: SERS membership is 1,822.
1981: Act 66 signed, establishing the Public Employee Retirement Study Commission to study public employee retirement and pension systems.
2001: Act 9 signed, which reduced the vesting period to five years from 10 years for all active members of PSERS and SERS, including members of the General Assembly. It also increased premium assistance for eligible retired members to $100 from $55 per month. A financial downturn followed the Sept. 11 terrorist attacks, which affected asset returns.
2002: Act 38 provides graduated percentage cost-of-living adjustments to those who retired prior to July 2, 2002. The change also includes a shift in valuation methodology of smoothing asset gains and losses from three years to five years. The employer contribution for 2002-03 is reduced to 1.15 percent from the original 5.64 percent. Act 234 allows annuitants of PSERS to return to school service in an extracurricular capacity without affecting their monthly benefits. Another poor year of investment returns increases unfunded liabilities in the pension systems.
2003: Act 40 changes the funding period of actuarial liabilities to 30 years from 10 years, effectively spreading out the payment of system costs and liabilities. In essence, the law refinances the pension mortgage. The 1 percent minimum employer pension contribution rate also is changed to a permanent employer contribution rate floor of 4 percent.
2008: Global economic collapse results in significant investment losses.
2010: Act 120 implements major reforms that affect both PSERS and SERS, including new benefit tiers applicable to all new PSERS members. The act increases the vesting period to 10 years from five years, pushes back the retirement age to 65 and ends the practice of withdrawing lump-sum payments upon retirement. The multiplier, which is used to figure what someone will collect in pension benefits, is reduced to 2 percent from 2.5 percent for employees contributing a required 7.5 percent. For those who want to keep the 2.5 percent multiplier, a base of 10.3 percent in employee contribution is required. The unfunded liabilities of PSERS are reamortized over a 24-year period, SERS over a 30-year period. The law also added a shared risk provision for new members where employees share costs with employers if investments fail to achieve assumed rates of return.
2012: Several pension-reform measures have been introduced to address the state's growing crisis. The current legislative options include creating a "cash balance" tier to the current defined-benefit plan; developing a hybrid plan that includes both defined-benefit and defined-contribution components; and closing the defined-benefit plan in favor of a 401(k)-style defined-contribution plan.