Pennsylvania’s Pension Crisis

PSBA Legislative Priority Issue: Address Pennsylvania’s Pension 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.  If no action is taken soon by the General Assembly, school boards and taxpayers face the unenviable burden of coming up with millions of dollars to meet the system’s underfunded mandate.

In the coming fiscal year, both the state and school officials must figure out how to pay pension obligations that continue to mount, with the total employer contributions for 2017-18 projected by the Public School Employees Retirement System (PSERS) at nearly $4.4 billion. Beginning on July 1, 2017 the annual employer contribution rate that must be paid by the state and school districts will jump to 32.57%, up from 30.03% in 2016-17, and from the 2015-16 rate of 25.84%.  The contribution will continue to climb over the next few years to a staggering 36.40% by 2021-22.

As required pension contributions have risen, so too have the amount of each school district’s budget dedicated to paying them. All of this translates into millions of dollars that must be included in each school district’s budget every year to cover mandated pension obligations.

From PSBA’s perspective, school districts have been in compliance with the law by making the mandated required contributions to PSERS each year, but the system is unsustainable and must be fixed now.  While some changes were enacted under Act 120 of 2010, they did not fully address both long-term and short-term concerns for the funding of the retirement system.

Without pension reform, the costs just continue to climb. PSBA believes that allowing Act 120 to play out without further refinement is not a tenable solution.

Meaningful changes must involve identifying another funding source for PSERS, decreasing or cutting the costs and liabilities of the system, including benefit levels, and examining the possibility of adoption of a hybrid pension plan that would reduce employer costs over time.  A hybrid plan combines elements of a defined benefit plan and a defined contribution plan in some manner. The state must enact meaningful school employee pension reform with the dual purpose of reducing projected employer contribution rate increases and reducing projected costs to school districts and taxpayers over the next two decades, while maintaining an appropriate pension benefit for school employees.