It should come as no surprise to most that a plan to reform Pennsylvania's state-run pension systems is expected to coincide with Gov. Tom Corbett's budget address Tuesday.
The Public School Employees’ Retirement System and State Employees’ Retirement System have unfunded liabilities that are more than $44 billion combined.
Likely proposals include moving away from defined-benefit plans in favor of a defined-contribution, or 401(k)-style, plans. A hybrid model also has been floated in the past.
In addition, the governor has talked of lowering the multiplier — a percentage applied to employees’ years of service and their final average salary to determine the retirement benefit.
PSERS currently has a funded ratio of 66.4 percent, according to its latest actuarial valuation, released last month. Its unfunded liability is $29.5 billion as of June 2012.
SERS has a funded ratio of 65.3 percent and unfunded liability of $14.7 billion as of December 2011.
Did you know? The last time both systems were fully funded was 2002 and 2003.
PSERS was 104.8 percent funded in 2002, but then fell. In 2008, it was up to 86 percent funded before sliding again when investments took a hit during the last financial crisis.
SERS was 104.9 percent funded in 2003 before dipping. The ratio came back to 97.1 percent in 2007 before it began falling again.
The pension systems rely heavily on investment returns as the primary source of funding. Employer and worker contributions are the other two pieces of the pie.
For its fiscal year, PSERS earned 3.4 percent on investments, which was below the 7.5 percent assumed rate of return.
SERS is closing its books on its 2012 fiscal year, which is the calendar year. Early estimates are showing a 12 percent net-of-fees return on investments, according to SERS.
The assumed rate of return also is 7.5 percent for SERS. Year-end returns are expected in March, said Pamela Hile, a SERS spokeswoman.
SERS posted a 2011 return of 2.7 percent.