HARRISBURG – The PA Public School Employees’ Retirement System (PSERS) Board of Trustees today adopted a resolution certifying an increase in the 2021-22 employer contribution rate and flat member contribution rates for the next three years for certain employee classification groups.
The annual employer contribution rate will be 34.94% for the FY 2021-22 fiscal year, which begins on July 1, 2021. Next year’s rate is a 1.25% increase over the current FY 2020 rate of 34.51%. The increase is in line with inflation and for the fourth year in row is lower than previously projected. The rate came in lower than expected due in part to actuarially positive demographic experience among PSERS membership.
Additional employer contribution rate projections will be updated after PSERS conducts its five-year actuarial Experience Study. That study is expected to be completed and presented to the Board in June 2021.
“We know any increase in the employer contribution rate can be troublesome for school districts, but the policymakers’ commitment to provide 100% full actuarial funding is helping to make a significant difference to the System’s financial picture,” said PSERS Chief Financial Officer Brian Carl. “The sustained employer funding, coupled with sound actuarial debt management and improving investment returns, has caused the System’s funded status to rise to 59% and the unfunded employer liability to fall by $100 million. Finally, net asset levels hit $60 billion as of September 30, 2020, as the Fund has recovered losses from the pandemic.”
Total employer contributions to PSERS are estimated to be $5 billion in FY 2021. The Commonwealth directly reimburses school employers for at least half of the total employer contribution rate. More than three quarters of the employer contribution rate is caused by the unfunded accrued liability (UAL) or past debt. As in years past, most of the employer rate payments will be applied to pay interest and principal on the debt.
PSERS is also funded through investment earnings and mandatory member contributions. For FY 2020, PSERS’ investments added $1 billion in net investment income to the Fund.
PSERS members contribute between 5.25% to 10.30% of their pay depending on their membership class and when they joined PSERS. Members are expected to contribute an average of 7.56 % percent or approximately $1.1 billion in FY 2021.
The Board resolution also certified the shared-risk provision state laws, Act 120 of 2010 and Act 5 of 2017, place on some members’ contribution rates based on their hire dates. Under those laws, their contribution rates may fluctuate up or down every three years depending on a review of the Fund’s investment performance for members hired after July 1, 2011 or July 1, 2019.
PSERS performance, despite COVID-19 market downturns this year, met the shared risk threshold and will not change for the affected classes. The rates remain: 7.50% for Class T-E; 10.30% for Class T-F; 8.25% for Class T-G; and 7.50% for Class T-H for the next three fiscal years (July 1, 2021 to June 30, 2024).
Member contribution rates also did not change in the prior two review periods (2014 and 2017). This year, PSERS Board hired an independent performance verification firm, ACA Compliance Group of New York, to conduct the verification of the investment return for the nine years ended June 30, 2020, the statutory time period for the shared risk measurement. The board hired ACA because net investment returns were in the narrow range of triggering higher member contribution rates. Member rates did not change. ACA confirmed the 9-year market value return as 6.38%, which is higher than the 6.36% risk share threshold.
The next measurement period for the shared risk provisions ends June 30, 2023.
In other business during the meeting, Mr. Christopher Santa Maria, of Wallingford, Montgomery County, was re-elected by acclamation to serve another three-year term on PSERS Board beginning on January 1, 2021. Mr. SantaMaria has served as a PSERS Trustee for four years and currently serves as the Board Chair. He has taught high school social studies for 35 years. Currently Mr. SantaMaria is an educator in the Lower Merion School District, where he has taught for the past 27 years. He holds a B.A. in History from Washington College and a M.Ed. from Cabrini College. He served as President of the Lower Merion Education Association from 2007 to 2018. He is a member of the National Council on Teacher Retirement, has taught macro and microeconomics, and is familiar with institutional investing, investment strategies, portfolio allocations, health plans, and annuities.
About the Pennsylvania Public School Employees' Retirement System
PSERS, founded in 1917, began operations in 1919 to oversee a statewide defined benefit pension plan for public school employees. PSERS' role expanded upon the passage of Act 5 of 2017 to include oversight of two new hybrid options consisting of defined benefit and defined contribution (DC) components and a stand-alone DC plan. As of Sept. 30, 2020, PSERS had net assets of $60 billion and a membership of about 256,000 active, 240,000 retired school employees and 26,000 vested inactive members.