House Co-Sponsorship Memoranda

As a result of the significant and continuing fiscal issues both PSERS and SERS, and therefore Pennsylvania taxpayers, are facing, I will be introducing legislation in the near future to require the Public Employee Retirement Commission (PERC), in conjunction with PSERS and SERS, to complete a comprehensive review of both systems, to include recommendations for a path forward.

As you know, the General Assembly in 2010 passed pension reform legislation which was signed by Governor Rendell. Act 125 of 2010 reduced the pension obligations for employees hired beginning in 2011 and going forward by decreasing multipliers, increasing vesting time periods and re-amortizing the existing unfunded liability.

While these were important and necessary steps forward, the changes made by Act 125 did nothing to alleviate the large obligation being created by current employees. In fact, even with the $2.9 billion saved as a result of pension reforms, a combined $29.4 billion debt has already been incurred within PSERS and SERS as a result of investment losses, employer contribution rates not meeting normal costs and benefit enhancements without the creation of new revenue streams. Additionally, within the next ten to fifteen years, PSERS expects its unfunded liability to be approximately 25% of the total employer payroll costs. SERS projects that its unfunded liability will grow to approximately $10.79 billion within the same time period.

This study will require PERC to measure the fiscal impact annuities will have on both PSERS and SERS as current employees retire. This work will detail the impact a switch to defined contribution, hybrid plan or cash balance plan would have on PSERS, SERS and state and public school employees. Part of this approach will be to examine the average pension disbursal to both state and public school retirees and compare it to average retirement compensation private sector employees typically receive.