For Immediate Release For More Information Contact:
December 6, 2019 Steve Esack
Public School Employees’ Retirement System
PA PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM BOARD OF TRUSTEES CERTIFIES EMPLOYER CONTRIBUTION RATE FOR FISCAL YEAR 2020-2021
Employer Contribution Rate is lower than projected
HARRISBURG, PA – The PA Public School Employees’ Retirement System (PSERS) Board of Trustees today certified an annual employer contribution rate that is lower than what had been projected for the upcoming fiscal year (FY).
The rate for FY 2020-21, which begins on July 1, 2020, will increase from 34.29% to 34.51% but it compares favorably to the previously projected rate of 34.77%. This is the third year in a row PSERS employer contribution rate is less than previously projected due to sustained funding from the Commonwealth and school employers, and positive demographic and economic experience.
Today’s certification marks the 5th consecutive year the employer rate provides the full actuarially required rate, which is necessary to pay down existing pension debt. That past service debt payment makes up more than 78% of the newly certified employer pension contribution rate. The debt was caused by years of suppressed employer contributions, unfunded benefit enhancements and market downturns. FY 2016-17 was the first time the actuarially required rate was paid after 15 years of underfunding. Full funding has led to the biggest improvement in the System’s financial health.
“We know the employer contribution rate remains high, however, the smaller than expected increase should be seen as positive news to employers and policymakers,” said PSERS Executive Director Glen R. Grell. “It shows PSERS funding level continues to improve thanks to the ongoing budgetary support of Gov. Wolf and our legislators, and the prudent investment decisions made by PSERS investment professionals and Board of Trustees.”
The increase in funding continues to have a positive impact on the funded ratio of the System, said Brian Carl, PSERS Chief Financial Officer. The funded ratio increased by nearly 3.00% from 56.5% to 58.1% during FY 2018-19. The percentage change is the first major improvement in PSERS funded ratio in over a decade, he said. If those developments continue with no major market fluctuations and no major changes to state law, Carl added, large annual employer contribution rate increases should remain in the past as future rate increases are projected to be less than inflation.
The FY 2020-21 employer contribution rate is the smallest year-to-year percentage increase since FY 2009-10 when the rate was artificially suppressed by Act 46, and it is lower than the nation’s current annual inflation rate.
Total employer contributions to PSERS will increase by about $98.9 million to $4.86 billion in FY 2020-21. The Commonwealth directly reimburses school employers for at least 50 percent of the total employer contribution rate.
PSERS is also funded through investment earnings and mandatory member contributions. For FY 2018-19, PSERS’ investments added $3.6 billion in net investment income to the Fund. PSERS members contribute between 5.25% and 10.30% of their pay toward their pension depending on their membership class and when they joined PSERS. Members are expected to contribute an average of 7.61% percent or approximately $1.1 billion in FY 2020-21.
Other business that occurred during today’s Board meeting included:
* PSERS Chief Investment Officer James H. Grossman Jr. reported the Fund earned a positive 1.99% net of fees for the quarter ended September 30, 2019. Longer-term, the Fund had net earnings of 8.10% for the 3-year; 6.42% for the 5-year; 8.32% for the 10-year; 8.04% for the 25-year; and 8.17% for the 30-year periods ended September 30, 2019.
* The Board approved a $200 million investment in Clearlake Capital Partners VI fund; and $150 million in each of the following funds; SASOF V LP, Portfolio Advisories Secondary Fund IV, Incline Equity Partners V, Apax X USD, and Insight Partners XI. All investment decisions are contingent on final contract negotiations.
*PSERS investment expenses continue to fall under a multi-year fee reduction plan the Board of Trustees adopted in 2018. Total investment expenses dropped nearly 4% from $468 million in
FY 2017-18 to $450 million in FY 2018-19. Roughly $4 million of those savings were generated by having PSERS investment professionals internally manage more assets rather than the Board paying external managers.
* As of June 30, 2019, PSERS investment professionals were managing $25.1 billion internally, saving PSERS approximately $48 million in management fees annually that would have been paid to external investment managers.
* Additional details on PSERS investment performance are available on PSERS’ website at: http://www.psers.pa.gov/About/Investment/Pages/default.aspx
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 hybrid options consisting of defined benefit and defined contribution (DC) components and a stand-alone DC plan. PSERS membership covers about 256,000 active and 237,000 retired school employees.