How the new Pa. pensions law redistributes dollars

How the new Pa. pensions law redistributes dollars

By Dan Hardy

Nov. 16, 2010
Phila Inquirer Staff Writer


Until Monday, when the state legislature passed a new pension bill, Pennsylvania's two state retirement systems - one for public-school employees and one for state employees, including legislators - were headed for a fiscal train wreck.

Contributions from state and school district coffers had been slated to increase sharply over the next four years, from close to $1.1 billion to more than $6.5 billion in 2014.

That $6.5 billion figure is more than two-thirds of what the state now spends on public education and an amount larger than the budget for any other department, except for welfare.

School districts pay nearly half the cost of the retirement bill for public-school employees, with the state paying the rest. The state pays pension costs for state workers.

Of course, taxpayers ultimately end up footing both those pension contributions.

Pension investments also shore up pension funds, but when they fall short, as they did with a vengeance in the 2007 recession, the "employer" rates, paid by government and school districts, rise.

With Gov. Rendell's expected signature, the new law will rein in ballooning pension payments by spreading out contributions over additional years. It also imposes limits on how much state and school district payments can increase in any one year.

Pensions for the current retirees and employees of the Public School Employees Retirement System (PSERS) and the State Employees Retirement System (SERS) - a total of nearly 700,000 people - will not change.

But future workers will see a 20 percent cut in pensions, unless they choose to contribute more.

That change kicks in Dec. 1 for legislators; Jan. 1 for other state employees; and July 1 for school employees.

Future workers may also have to contribute more if the pension systems don't live up to investment projections.

New employees in both groups will have to work 10 years instead of five to be included, and the retirement age with full benefits will rise.

Pensions for current and future judges are not affected; a state Supreme Court ruling exempts them from any cuts.

Here's how some of the dollars will play out with the new legislation:

Funding of school employee pensions, which had been expected to cost districts $5 billion by 2014-15, will still rise significantly, but to just more than $3.2 billion, according to the nonpartisan Public Employee Retirement Commission.

Contributions for school worker pensions will drop more than $10.2 billion between now and 2021, and $2.5 billion for state workers between now and 2016.

To make up for lower contributions, payments will have to stay higher for longer.

By 2044, reduced pensions to new employees will have started to take effect, with total savings between now and then at almost $1.4 billion for school workers and $1.5 billion for state employees.

The pension plans will be even more underfunded - below the 58.2 percent of funding expected for the school workers in 2014-15 and below the 68.8 percent for state workers; 80 percent is considered acceptable by actuaries.