PSERS financials for 2018
The comprehensive annual financial report for the Public School Employees’ Retirement System (PSERS) for fiscal year 2017-18 was recently published. PSERS covers public school employees working for the state’s 500 school districts. The report shows 256,000 active members (about 8 percent are from the Philadelphia and Pittsburgh school districts) and 233,000 retirees and beneficiaries receiving benefits with just over 12,000 retirees added to the rolls in FY 2017-18).
According to the report the funded ratio (assets divided by liabilities) was 56 percent. If ranked on the distress scale applicable to municipal plans in the state, PSERS would be in the moderately distressed category.
A total of $9.9 billion was added to the plan in FY 2017-18, with employees contributing $1.0 billion, employers (the state and school districts) contributing $4.2 billion and investment income producing $4.7 billion. Total deductions from the plan were $6.7 billion. In PSERS’ analysis of the past two decades of contributions, an average 60 percent of the funding has come from investments, 24 percent from the employer and 16 percent from employees.
The employer contribution rate last fiscal year rose to 32.57 percent from the previous year’s 30.3 percent; projections show the rate going up to 36.32 notwithstanding the Act 5 reforms that will affect new hires beginning next July. No longer will stand-alone defined benefit plans be offered to new employees who will instead select from two hybrid (defined benefit and defined contribution) plans and a defined contribution plan.
As we pointed out in July 2017 “some of the risks associated with investments, longevity changes and inflation are shifted to employees in their defined contribution component. Longer term, the plan becomes more fiscally stable—absent legislative tinkering that reverses the advantages offered the government by the defined contribution component.” The longer term is likely a decade or so at the very least before the funded ratio begins to rise significantly from its current low level. By 2030 the projection is for a ratio in the low 70s and by 2040 for a 95 percent ratio. Until that time expect plenty of school districts that apply for Act 1 exceptions to their property tax limit to cite pension obligations as the reason.