Voice: March 2017
Act 120, real pension reform legislation passed in 2010, is working the way it was designed. Just six years after it became law, employers are now making 100 percent of their annual required contributions to the Public School Employees' Retirement System for the first time since 2003. The worst pain for employers is now over; increases in their annual PSERS' contributions will "decelerate dramatically" in future years; and the actuarial status of the fund "has reached a turning point."
Another critical milestone: The employer contributions are now sufficient to begin to pay off PSERS' $42.7 billion unfunded liability. In fact, $3 out of every $4 that employers pay into PSERS is used to pay off this debt.
This isn't "fake news." It comes from the latest actuarial valuation for PSERS by Bucks Consultants, and as PSERS noted in the report presented to its Board of Trustees in December, "bond raters have noticed."
"As we have been saying all along, Act 120 is working in addressing the unfunded liability and will continue to do so," PSEA Treasurer Rich Askey said. "We need to let Act 120 keep working."
Steven R. Nickol, assistant director of PSEA retirement programs, said if the reformers' cornerstone proposal of moving new employees into a 40l(k)-style defined contribution plan were enacted, it would increase contributions for school employers. "Does that solve the pension crisis?" asked Nickol, who was a PSERS trustee when he was a state legislator from York County. "Putting new hires into a defined contribution plan does not address the real problem, which is the unfunded liability.
"The real pain for employers is over. Looking forward, the steps are much smaller and have reached their peak. Act 120 is working slowly, but it is working, and there is nothing out there that can make the unfunded liability go away any faster. In fact, taking new hires out of the defined benefit plan would make it worse."
Keeping the promise! PSERS Report says Act 120 is working
- Most important step. Employers' normal contribution rate under Act 120 hit 100 percent in 2016-17.
- Contributions decline. Employers' normal contribution rates will decline in 2017-18 to 7.7 percent. The total employer contribution rate will be 32.57 percent in 2017-18, compared to 30.03 percent in 2016-17. That is the smallest increase since the pre-Act 120 fiscal year of 2009-10.
- More toward unfunded liability. Seventy-five percent of employers' total contribution is now going directly toward the unfunded liability.
- Turning point. For fiscal year 2018-19 and beyond, the funded ratio is projected to improve after declining since 2001.
