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PA PSERS BOARD CERTIFIES DECREASE IN FY 2024-2025 EMPLOYER CONTRIBUTION RATE

12/15/2023

FOR IMMEDIATE RELEASE

December 15, 2023  

MEDIA CONTACT: Steve Esack, 717-418-7526, stesack@pa.gov

PA PSERS BOARD CERTIFIES DECREASE IN FY 2024-2025 EMPLOYER CONTRIBUTION RATE

Certain Employees to pay less for benefits due to positive shared-risk investment measurement.

HARRISBURG, PA – The Board of Trustees of the Pennsylvania Public School Employees' Retirement System (PSERS) today adopted a resolution certifying a decrease in the employer contribution rate and lower payroll contribution rates for certain employee classification groups.

The new Employer Contribution Rate (ECR) starts in the 2024-25 fiscal year (July 1, 2024, to June 30, 2025). Certain employee groups' lower payroll contributions run over the next three fiscal years (July 1, 2024, to June 30, 2027).

The annual employer contribution rate will decrease to 33.9%, from the current ECR of 34.00%, according to the Board's actuarial firm, Buck Global LLC.

"This is the second year in a row the ECR has gone down, and the Retirement Code requires the Board to accept the actuary's calculation," said PSERS Trustee Eric DiTullio, Chair of the Finance and Actuarial Committee. "There's no guarantee those declines will continue in the future. Still, as an elected school board member, I'll take an ECR reduction, no matter how slight, over an increase every day of the week."

The decline was caused largely by school employers strong payroll growth and favorable demographic changes involving salary increases, mortality, and retirements during the recently ended 2022-23 fiscal year, Buck's report shows. Those same factors, along with sustained actuarially required ECR funding, contributed to a $1.6 billion decrease in the PSERS long-term unfunded actuarial liability, the largest year-to-year decline in over a decade and a half. At the same time, PSERS actuarial funded status rose from 61.6% to 63.6%, according to Buck.

The vast majority of the employer contribution rate in FY 2023-24 covered debt payments for past service (unfunded liability), in fact, approximately 80%.  Compounded by higher-than-expected payroll growth, PSERS has been able to make significant and positive progress in paying down this debt.

"These changes to PSERS' actuarial bottom line are significantly important to the long-term health of the fund," said Trustee Richard Vague, the Board Vice Chair. "These improvements are testaments to the financial commitment Governor Shapiro, the General Assembly, and school boards have shown to PSERS through continued full ECR funding."  

Total employer contributions to PSERS are estimated by Buck to be $5.3 billion in FY 2025. The Commonwealth directly reimburses school employers for at least half of the total ECR payment.

PSERS is also funded through net investment earnings, which were $2.8 billion in FY2023.   Mandatory employee contributions are the third funding source for PSERS. Employee contribution rates range from 5.25% to 10.30% of their pay depending on their membership class and when they joined PSERS.  

Beginning in July, 116,851 public school employees, who began their careers in 2011, will pay 0.5% or 0.75% less for their retirement benefits.  The reduction was caused by net investment returns exceeding a statutory threshold in the calculation of the Shared Risk/Shared Gain Contribution Rate.

The Shared Risk/Shared Gain Contribution Rate is mandated by Act 120 of 2010 and Act 5 of 2017. Under those laws, certain member contribution rates for the defined benefit plan may fluctuate up or down every three years depending on a periodic review of the Fund's net investment performance.

"The lower employee contribution rate is welcome news for our hardworking school employees," said PSERS Trustee and Pennsylvania Treasurer Stacy Garrity. "The Audit, Compliance and Risk Committee, which I chair, oversaw and directed a robust, independent examination of PSERS' net investment returns, and we're confident in the work of ACA and the results we received. I'm grateful to the members of the Committee and the entire Board for their diligence throughout this process."

ClassPaycheck % Change
FY 2024-25 – 2026-27  
Total Base Rate
FY 2024-25 – 2026-27
Class T-E-0.50%7.50%
Class T-F-0.50%10.30%
Class T-G*-0.75%5.50%
Class T-H**-0.75%4.50%

*+2.75% DC Contribution Rate; **+3.00% DC Contribution Rate

Other Business:

  • The Board approved two investment commitments: $100 million to OceanSound Partners Fund II, L.P. and $100 million to Clearlake Capital Partners VIII, L.P.
  • The Board voted to terminate its contract with Aon Investments USA, Inc. (Aon).  Services previously provided by Aon will now be performed, in full, by Verus Investments.
  • Per PSERS' Investment Transparency Policy, the Investment Committee reviewed a private markets fee and carried interest profit report for the 2022 calendar year. The report shows PSERS retained 92% ($2.6 billion) of profits that are contractually shared between PSERS and managers over the calendar year. PSERS paid $377 million in management fees and additional expenses and $231 million of paid carried interest to managers. The report will be posted online.

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, 2023, PSERS had total net assets of $72.8 billion and a membership of about 251,000 active, 250,000 retired school employees and 27,000 vested inactive members.

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