The PA Public School Employees’ Retirement System Board of Trustees met Friday and certified the annual employer contribution rate of 33.43 percent for FY 2019, which begins on July 1, 2018.
The certified employer contribution rate for FY 2019 is less than the previously projected 34.18 percent due in part to positive FY 2017 economic and demographic experience, including investment outperformance.
PSERS earned 10.14 percent for FY 2017, well above its earnings assumption of 7.25 percent, and added $5 billion in net investment income with one of the most risk-balanced asset allocations in the country according to industry standards.
Friday’s certification of the employer contribution rate also marks the third consecutive year the employer rate provides 100 percent of the actuarially required rate necessary to begin to pay down the existing pension debt.
In the past, various pieces of pension legislation suppressed the employer contributions paid to PSERS by the school employers and Commonwealth. FY 2017 marked the first time in fifteen years that the actuarially required rate was paid by school employers and the Commonwealth.
PSERS Executive Director Glen R. Grell commented on the importance of full actuarial funding, “The Commonwealth and school employers have made dramatic progress in addressing pension funding issues. While budgetary issues remain for the Commonwealth and school employers as the employer contribution rate remains high, paying the actuarially required rate is a vital step that will begin to address the already accumulated pension debt. Currently over 75 percent of the total pension contribution rate is for past service, a debt already earned that must be paid.”
Grell continued, “All necessary sources of funding (full actuarial funding from employers, along with member contributions and investment income) are now in place to eventually bring PSERS back to fully-funded status over time. Positive results have already occurred in some areas. On a market value basis, PSERS’ unfunded liability declined in FY 2017 as PSERS’ total net position grew faster than its total pension liability. As a result, the funded ratio on a market value basis also improved.”
Total employer contributions to PSERS of $4.6 billion are estimated in FY 2019. The Commonwealth directly reimburses school employers for no less than 50 percent of the total employer contribution rate.
PSERS is also funded through investment earnings and mandatory member contributions. For FY 2017, PSERS’ investments added approximately $5 billion in net investment income to the Fund.
PSERS members contribute from 5.25 percent to 10.30 percent of pay depending on their membership class and when they joined PSERS. Members will contribute an average of 7.57 percent or approximately $1.04 billion in FY 2019.
For more information, visit the PA Public School Employees’ Retirement System website.