School pension costs up even as investments gain value
Pennsylvania's pension fund for school employees is earning more than expected from its investments, but school districts still will be paying more into the fund for the next fiscal year than they are now.
The Public School Employees' Retirement System said the fund ended the 2016-17 fiscal year in June with a 10.14 percent return, above the system's assumed annual return of 7.25 percent.
But the rising returns aren't yet putting a dent into school contributions.
The employer contribution rate for the fiscal year beginning in July 2018 will be 33.43 percent of payroll, up from 32.57 percent this year.
Still, it could have been higher. PSERS had projected next year's contribution rate to be 34.18 percent of payroll based on the assumed rate of return.
In dollar terms, Pennsylvania taxpayers can expect to pay $4.6 billion, or about $200 million more in 2018-19 compared with the current fiscal year, to support school employee pensions.
The fund is still absorbing investment losses from the last recession. PSERS said the fund's 10-year return at the end of the fiscal year was 3.8 percent because of returns during 2008 and 2009. But in the eight fiscal years since the recession, PSERS earned an annualized net of fee return of 9.28 percent, according to James Grossman Jr., PSERS's chief investment officer.
If strong investment returns continue, future employer contribution rates could be reduced from current projections, which so far show a continued increase, officials said. The projected rate for 2019-20 is 34.79 percent of payroll.
PSERS Executive Director Glen Grell said 2018-19 will be the third straight year where the employer contribution rate will provide 100 percent of what actuaries say is needed to pay down existing pension debt. The unfunded liability is currently $44.5 billion.
Investment returns are off to a strong start in fiscal 2018, according to PSERS. The fund posted a 3.14 percent return for the fiscal first quarter that ended Sept. 30. In the first quarter of fiscal 2017, the fund posted a return of 3.65 percent.
As of the end of the first quarter, PSERS had net assets of about $54.1 billion and a membership of nearly 256,000 active school employees and more than 230,000 retirees.