Pa. near the bottom on pension health
Changes are coming to pension benefits for newly-hired state employees in less than a month and for public school employees later in 2019 due to Act 5 of 2017. That legislation was enacted to try and improve the health of the state’s two plans, the State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS). Those changes will create three new pension plans, all with a defined contribution component to them, for new hires.
An analysis by the Pew Charitable Trusts on state pension health shows that, when ranked by the aggregate funded ratio (assets divided by liabilities) for state-level pension plans, Pennsylvania is ranked 44th out of 50 with a 53 percent funded ratio for SERS and PSERS. The U.S. average was 66 percent funded. Neighboring New Jersey came in last with an aggregate funded ratio of 31 percent for seven state-level plans, with all but one in the 30 percent or lower funded range.
A look at Pennsylvania’s plans from 2000 forward shows that 2003, when assets were $80.2 billion and liabilities were $80.5 billion, was the last year that could be considered at equilibrium. After that Pennsylvania’s annual required contribution (percent of the actuarially recommended payment that employers contributed) began to decline from over 100 percent to the 30 and 40 percent range and the gap began to widen. This was traceable to state legislation passed in 2001 and 2003.
Wisconsin, with one state-level plan, the Wisconsin Retirement System, was ranked first in the Pew analysis. Over its 16 year data snapshot the gap between assets and liabilities never occurred like it did in Pennsylvania. Wisconsin regularly made 100 percent or more of its annual required contribution.
The system’s funded ratio is 99 percent, which, if projections hold and all goes according to plan, is a level SERS and PSERS will attain sometime in 2040. In the meantime the legislative reforms will not eliminate the fiscal and budgetary pressures caused by huge unfunded liabilities in the current pension plans.