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PSERS board increases rate; unfunded liability continues to grow

By , - Last modified: December 7, 2012 at 10:08 AM

The employer contribution rate for the Public School Employees' Retirement System, or PSERS, will increase to 16.93 percent from 12.36 percent for the 2013-14 fiscal year that begins July 1 to help cover the underfunded pension plan.

The PSERS board on Thursday approved the bump, which is expected to cost state and local school taxpayers $2.3 billion.

The increase was no surprise. The plan has $48.8 billion in assets and is only 69.1 percent funded.

The rate would have been much higher without rate caps established under Act 120 of 2010, which reduced benefits for new hires and reamortized unfunded liabilities, delaying steep spikes in state contributions.

The commonwealth reimburses school employers for not less than 50 percent of the total employer contribution rate. PSERS also is funded through investment earnings and mandatory member contributions.

Members of the pension fund are expected to contribute an average of 7.43 percent of their salary to help funded retirement benefits in 2013-14, according to PSERS.

Growing liability

PSERS had an unfunded accrued liability of $26.5 billion as of the end of June 2011, according to its last actuarial valuation, released in January.

That number is expected to grow to $29.5 billion, said Evelyn Tatkovski, a PSERS spokeswoman. The rate of return on investments for the 2011-12 fiscal year came in at 3.43 percent — missing the assumption rate of 7.5 percent.

“It didn’t grow by as much as expected,” she said, citing a decline of about 6,000 active members from the 2010-11 fiscal year, which decreases payroll.

As a result, PSERS and the State Employees’ Retirement System, or SERS, are projected to have a combined unfunded liability of more than $44 billion. Liabilities have grown primarily because of down investment markets in the beginning of the last decade and the global recession in 2008.

Benefit enhancements for active and retired members in 2001 and 2002 and deferral techniques that changed the amortization schedule of gains and losses in 2003 also contributed.

State policymakers discussed changes in the 2011-12 legislative that would move away from guaranteed pensions in favor of 401(k)-style investment plans. However, current guarantees still need to be addressed.

The Corbett administration and top Republican lawmakers have promised pension reform and transportation infrastructure funding debate in 2013, the start of a new legislative session.


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Jason Scott

Jason Scott

Jason Scott covers state government, real estate and construction, media and marketing, and Dauphin and Cumberland counties. Have a tip or question for him? Email him at jscott@cpbj.com. Follow him on Twitter, @JScottJournal.

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