PSBA Legislative Priority Issue: Address Pennsylvania’s Pension Funding Crisis
As participants in the Public School Employees’ Retirement System (PSERS), school districts are required to make contributions, which are an actuarially calculated percentage of district payroll, to help fund the system. These contributions continue to rise at unprecedented rates. PSBA wants to ensure school districts can provide a high quality public education and the association remains very concerned that the pension costs will impede the ability to do just that. Between the 2002 and 2017 fiscal years, total employer pension costs have increased more than 3500%. As a result, school districts have made reductions to programs, services and staffing levels to mitigate the impact on taxpayers. Despite those efforts, school districts have been forced to raise property taxes significantly to meet their mandatory pension obligations.
Current pension plans for public school and state employees will change under Act 5 of 2017. The plan under Act 5 requires future employees starting in 2019 to select one of three new plan design options, either one of two side-by-side hybrid defined benefit (DB)/defined contribution (DC) plans or a stand-alone DC plan. No changes are made to retirement benefits for current employees, but they would have the option to choose one of the new plan designs. The Act 5 plan focuses on the long-term advantages by gradually shifting the investment, inflation and longevity risks away from the state and school districts, but does not provide short-term financial relief.
PSBA believes that the continued underfunding of public school employee pensions is undermining the solvency of school districts and the Commonwealth, as well as leading to underfunding of agencies that both directly and indirectly impact the ability of school districts to provide a quality education. Pennsylvania must begin to fund the pension liability at a rate which both exceeds the increase in the annual liability and which reduces the annual cost to school districts.