PSERS Board Certifies the First Decline in the Employer Contribution Rate in More Than a Decade

HARRISBURG – The PA Public School Employees' Retirement System (PSERS) Board of Trustees today certified the FY 2023-24 employer contribution rate at 34.00%, which represents the first year-to-year decline for school employers in more than a decade.

The employer contribution rate (ECR) for the fiscal year beginning July 1, 2023, will be 3.6% lower than the current FY 2022-23 rate of 35.26%. The ECR sets the shared costs local school employers and the Commonwealth pay toward retired and current employees' benefits. 

The total employer contribution is projected to be $126 million lower ($5.188 billion) in 2023-24 compared to 2022-23 ($5.314 billion).

"This is great news and I will gladly vote for it," Trustee Eric DiTullio, chairman of the PSERS Finance and Actuarial Committee, said at Friday's Board meeting. "As an elected school board member back home, I speak from experience when I say the decline in the FY 2023-2024 ECR and the decrease in future employer rate projections over the next several years will be happily accepted in school districts around the state. School boards set their budgets based on the ECR percentage rate, and a lower ECR will equal real multi-year budgetary savings for their local taxpayers."

The rate decrease, the first since 2008-09, was caused in large part by PSERS' employers strong payroll growth and favorable demographic changes involving mortality and retirement experience, according to the Board's actuarial firm, Buck. Those same factors and sustained actuarial ECR funding contributed to a $1.5 billion decrease in the System's long-term unfunded actuarial liability, the largest decline since 2006-07. Those changes, in turn, raised PSERS actuarial funded status by 3.4% to 61.6% in the recently ended 2021-22 fiscal year, according to Buck.

Act 120 of 2010 mandated a sustainable plan to pay down the unfunded liability via stepped-up ECRs.   The unfunded liability was caused by 15 years of budgetary ECR shortfalls, unfunded benefit enhancements and investment losses. Annual ECR increases tapered off in recent years to below inflation and have been lower than projected for the last six years.

The ECR is expected to rise slightly in 2024-25 and beyond but those rate projections are lower than previous projections. The System's funded ratio then is expected to reach 80.5% in FY2031 as more newer workers join the System under the reduced retirement benefit structure enacted by Act 120 of 2010 and Act 5 of 2017 and full annual funding of actuarial required contributions continues.

"In summary, full annual funding since July 1, 2016, favorable long-term investment returns, and a declining cost of current benefits continue to make a positive difference on the financial health of PSERS," PSERS Chief Financial Officer Brian Carl said.

Other Board Business

• The Board approved two real estate investment commitments: $115 million to Angelo Gordon Europe Realty Fund IV and $150 million to Bell Value-Add Fund VIII.
• The Board reviewed and accepted three reports on investment expenses, which are presented annually. These will be posted to PSERS website. The total investment expenses report showed total investment fees decreased by $93 million to $525 million from FY2021 to FY2022. The decline was attributable to lower base fees and profit share to external managers.
  

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 benefit options consisting of defined benefit and defined contribution (DC) components and a stand-alone DC plan. As of June 30, 2022, PSERS had total net assets of $71.2 billion and a membership of about 248,000 active, 247,000 retired school employees and 27,000 vested inactive members.

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