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06/06/2017

Message to Members: Pension Reform Legislation Update (UPDATED 6/12/2017)

Pension Reform Legislation: Update

UPDATED 6/12/2017 - SB 1, P.N. 902 passed the House on Thursday, June 8, 2017, with a vote of 143-53. SB 1 and was signed into law by Governor Wolf on Monday, June 12, 2017. 
 
On Monday June 5, 2017, Senate Bill (SB) 1, Printer Number 902, received third and final consideration and passed in the Senate (40–9). SB 1 now moves to the House for consideration. If the House passes SB 1 then the Governor may sign and enact the bill into law, veto the bill, or not sign the bill and allow it to become law after 10 days without his signature.
 
SB 1, P.N. 902 currently proposes the following key provisions:
 
RETIRED PSERS MEMBERS - SB 1 does not impact already retired members or those whose retirement date is prior to the enactment of SB1.
 
CURRENT T-C AND T-D MEMBERS - SB 1 does not impact T-C and T-D members. SB 1 allows Class T-C and T-D members active on July 1, 2019 to switch from the current defined benefit plan to one of the three new retirement plan design options for retirement benefits if they so choose.  
 
CLASS T-E AND T-F MEMBERS – SB 1 allows an actuarially neutral Option 4 “lump sum” withdrawal of member contributions for members whose retirement date is after the enactment  of SB 1 and makes modifications to the “shared risk” program which will allow members to benefit when the Fund outperforms its investment rate of return assumption. Also SB 1 allows Class T-E and T-F members active on July 1, 2019 to switch from the current defined benefit plan to one of the three new retirement plan design options for retirement benefits if they so choose. 
 
NEW MEMBERS HIRED ON OR AFTER JULY 1, 2019 - SB 1 requires new members hired on or after July 1, 2019, to choose one of three new retirement plan design options for retirement benefits.  The current defined benefit plan will no longer be available to new members hired on or after July 1, 2019.  The new plan design options include two hybrid plans consisting of defined benefit and defined contribution components. The third option is a stand-alone defined contribution plan.
 
OTHER PROVISIONS –
·         Establishes the Public Pension and Asset Investment Review Commission to study and make recommendations to the General Assembly and the Governor regarding investment performance and investment strategies
·         PSERS school employers will be charged interest at the assumed rate of return, currently 7.25%, for delinquent payments to PSERS rather than 6%
·         Replaces one of the Governor’s appointees to PSERS Board of Trustees with the Secretary of Banking and Securities
·         Requires PSERS Board members to obtain 8 hours of relevant training annually
·         Provides for PSERS legal counsel to serve independently from the Governor’s Office of General Counsel
 
·         SCHOOL EMPLOYERS Long-Term Savings:  The IFO actuarial note indicates that long-term savings are generated from benefit reductions estimated to save PSERS approximately $217 million on a cash flow basis over the projection period. Savings largely accrue between 2035 and 2050 after PSERS’ current unfunded liability (pension debt) is projected to be fully amortized. 
 
Short-term Costs:  Although the proposal has long-term savings, it also carries with it short term costs.  According to the IFO actuarial note, between 2019 and 2034, the proposal is projected to cost the Commonwealth and school employers an additional $158 million on a cash flow basis.
 
Impact on Employer Contribution Rates: The IFO actuarial note indicates the proposal would increase employer rates for the next 15 years through FY 2033-34 due to higher initial costs of the new retirement plans. From FY 2034-35 to 2049-50, employer rates are projected to begin to decline due to the lower long-term employer costs of the new retirement plans.
 
Links to SB 1 actuarial note
 
 
A full detailed copy of the SB 1 legislation can be found on the General Assembly’s website at:  www.legis.state.pa.us  by typing the bill number “SB1” in the search field in the upper right corner.
 
As in the past, PSERS will not take a position on any pension reform bill. We provide pension bill drafting and analysis to the legislature and various stakeholders. PSERS does not lobby, endorse, or recommend specific options to address the pension funding issue, but we are frequently asked to provide financial and actuarial data to the legislature as well as the Independent Fiscal Office.
PSERS will continue to closely monitor legislative activity and will keep you updated if SB 1 becomes law.