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 quality public education and the association remains very concerned that the pension costs will impede the ability to do just that. According to PSBA’s 2020 State of Education report, between 2010-11 and 2017-18, the mandated employer contribution rate increased significantly. In the 2021-21 school year, an additional 34.5 cents of every dollar spent on salary costs will go toward pension obligations. 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.
Pension plans for public school and state employees are set under Act 5 of 2017. Act 5 requires employees to select one of three 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.