The public teacher and state employee pensions systems are in better financial shape due to higher returns on investments this year over last, according to one of the architects of a recently approved law designed to reduce costs in the systems.
“They got 14 percent more in their investment returns last year than the year before,” said State Rep. Glen Grell, R-Cumberland. “They would have to get close to that return for the next 15 years to get out of danger.”
Representatives of the State Employees’ Retirement System (SERS) and the Pennsylvania School Employees’ Retirement System (PSERS) testified before lawmakers last week.
Grell said the effects of a recently approved pension reform law, Act 120, have thus far made little impact on the systems.
“The school districts don’t even fall under the new law until July 1, since that’s when their fiscal year begins,” Grell said.
Brian Carl, chief financial officer for PSERS told lawmakers that Act 120 requires new state and school employees to pay 7.5 percent while the state will be paying 2.5 percent toward the benefit plan.
“So what you have is a mostly member-funded benefit going forward,” said Carl.
Both the teachers and state employee pension systems are defined benefit plans. The plans give retirees a pension tired to a percentage of their salaries, which is in turn based on years worked.
Governor Corbett favors a switch to defined contribution plans, which are investment accounts with both employers and employees setting aside part of their salaries.
Grell said that the General Assembly is likely to make additional changes to the pension systems, but expects no action any time soon.
“Right now we have a budget deficit of $4 billion to worry about,” Grell said. “It will be easier to get lawmakers and the Governor’s attention on this after the budget process.”