PSBA Pension Reform Bill to be Introduced Today

Information received from PSBA

Dec. 16, 2009 More Info

  

PSBA Pension Reform Bill to be Introduced Today;

 

Please Ask Your Legislator to Co-Sponsor
An announcement on the introduction of a bill calling for a major change to the Public School Employees Retirement System and backed by PSBA will be introduced this afternoon (Dec. 16) at 2:00 p.m.at the State Capitol.

 

Sponsored by Sen. Gene Yaw (R-Lycoming) and Rep. Glen Grell (R-Cumberland), the bill would transform PSERS from a 100% defined benefit system to a hybrid defined benefit/defined contribution system.

The proposal, HB 2135 (no Senate bill number at this writing), is part of the recommendation made by PSBA's Pension Study Committee in 2007. The recommendation was unanimously accepted by the PSBA Board of Directors and the PSBA Platform Committee and was overwhelmingly reaffirmed this past fall by voting delegates from around the state at the meeting of the PSBA Policy Council.

The legislation being proposed represents the committee's long term solution to the pension issue. As described previously, PSBA is calling for the creation of a hybrid pension system for school employees, one that combines the advantages of a defined benefit and a defined contribution system.

 

The bill would create a new class of employees, T-E, comprised of individuals who join the system after June 30, 2010. These employees will enjoy the benefits of a defined benefit system, albeit at a lower benefit level, but also have the opportunity to make contributions and control the types of investments in which their contributions are placed through a newly-created defined contribution program. At the time of their retirement, these individuals would reap the benefits earned by both the defined benefit investments and their defined contribution benefits.

 

The defined benefit features that would be included in the bill for class T-E employees are 1) an employee contribution rate of 3.25% of salary, down from the current 7.5%; 2) a multiplier of 1%, down from the current 2.5%; and 3) a vesting period of 10 years, up from the current 5-year period.

 

The new defined contribution system calls for the creation of an Individual Annuity Savings Account for all eligible members of the system. Each eligible member would contribute a minimum of 3% of their salary to the account, along with a mandatory match of 2% of compensation by the employer. Employees could contribute more subject to IRS limitations.

 

The PSERS Board of Directors would have the power to make any necessary rules and regulations for the administration and management of the Individual Annuity Savings Plan and have the power to enter into written agreements with one or more financial institutions or other organizations relating to the plan's administration and investment of funds. These rules and regulation include, but are not limited to the following:

 

• The types of investments that are permitted
• How and when individuals can transfer contributions between investments
• Procedures for deducting amounts to be deferred from members' compensation
• Standards or criteria for the selection for the selection of financial institutions or other organizations that may be qualified as managers of funds deferred under the plan or to provide other services relating to the administration and management of the plan
• Standards and criteria for disclosing and providing options to eligible individuals regarding investments of amounts deferred under the plan
• Standards and criteria for disclosing the anticipated and actual income attributable to amounts invested, property rights and all fees, costs and charges to be made against amounts deferred to cover the costs and expenses of administering and managing the plan or funds
• Procedures, standards and criteria for the making of withdrawals from the plan upon separation from employment or death or in other circumstances consistent with the purpose of the plan.

 

The bill also modifies the 4% minimum employer contribution floor, so that it would remain in effect in years when the funded ratio of the plan is 100% or more. However this minimum rate would be offset by the amount of funds contributed as part of the defined contribution part of the system.

 

Also, the bill provides that increases in school district contributions to the pension system would be capped at the Act 1 index. Should the increase in the school district share of the employer contribution rate exceed the current year Act 1 index, the state would pick up the difference between the new employer contribution rate and the index.

 

The hybrid pension bill would save the system, including school districts and taxpayers, money over the long run because it would create a system that is less expensive to operate, both in terms of the contributions needed and in terms of the benefits paid out to retirees. Projections from Buck consultants, the actuaries used by PSERS, show that the employer contribution under the hybrid plan would be less than under the current plan over the next 25 years. Moreover, the current PSERS system benefit represents approximately 72% of final salary, while the hybrid plan benefit would represent anywhere from 53% -63% of salary depending on investment returns and the amount of salary employees choose to contribute to the defined contribution part of the plan.

 

 

How you can help:

 

Please call your House and Senate member(s) and ask them to sign on to the co-sponsorship letter for HB 2135 and the Senate Bill. Interested legislators can also call Sen. Yaw's office at (717) 787-3280 or Rep. Grell at (717) 783-2063. These bills represent a major change to the current school employee's pension system that will save taxpayers and school districts millions of dollars that are needed to pay for pension contribution increases over the next 22 years.

 

Visit PSBA's Web site now for access to a host of information on the pension issue including a sample letter we are asking you to send to your legislators asking them to co-sponsor the legislation.

  

The 2010 employer contribution rate has been set at 8.22%, a 72% increase over the current rate, so the large increases have already begun. The employer rate is projected to hit its maximum of 33.60% in 2015 and to remain above 20% until 2032, meaning that it is crucial that the Legislature begin its work now to find a solution so that those increases can be mitigated.

 

PSBA is also participating in a hearing on public pension issues being conducted by the Senate Finance Committee this morning. PSBA's testimony is scheduled for 10:30 a.m.

 

Both the hearing and the news conference will likely be covered by the Pennsylvania Cable Network (PCN) for those wishing to view the proceedings.