Pennsylvania Pension Says State Continues to Underfund System, Contribution Rate is “Artificially Suppressed”

The CIO for the Pennsylvania Public School Employees’ Retirement System (PSERS) this week released a statement on the system’s 3 percent investment return for fiscal year 2014-15.

But buried in the statement was an interesting comment from CIO James Grossman:

“PSERS continues to be underfunded by school employers and the Commonwealth and we continue to be cash flow negative. As a result, PSERS cannot take the same investment risk we had in the past.”

On Wednesday, PSERS further explained this position to a Philadelphia Inquirer columnist, saying the state contribution rates are “artificially suppressed”. From Philly.com:

PSERS “continues to be underfunded by school employers and the commonwealth,” Grossman noted in this statement Tuesday.

How’s that possible — when all the school districts inspected by state Auditor General Gene DePasquale lately report they are indeed making their legally required contributions and sometimes a bit more?

Because “the rate is artificially being suppressed, as it has been for many years,” PSERS spokeswoman Evelyn T. Williams explains:

Taxpayers last year contributed an extra 21 cents for every $1 of school payroll last year to help fund PSERS and keep its multibillion-dollar deficit from growing. It would have been more like 27 cents, Williams says, if pension actuaries had been able to set payments based on the system’s actual financial need, without the state-imposed “rate collar” Act 120 set in place to delay pension payments into the future, so they’ll be higher in years to come. The surcharge will be 26 cents this year, and is expected to stabilize above 30 cents over the next few years.

It’s a slow, expensive way of coping with an old, expensive problem: Since then-Gov. Tom Ridge and most of the General Assembly voted to raise their own pensions and those of hundreds of thousands of future retirees, without raising money to pay for it all, back in 2001, and especially since the 2008 investment market collapse (which forced pension plans to sell illiquid private investments and other assets, draining funds the ensuing market rally didn’t fully restore), PSERS, like the New Jersey and the Pennsylvania state workers’ pension systems and municipal pensions in Philadelphia and other communities with more retirees than city workers, have kept spending down their assets and bringing closer the day when they’ll require multibillion-dollar cash infusions, or go broke and force public bankruptcy and arbitrary pension cuts.

PSERS manages $51.9 billion and is the 20^th largest state-level DB plan in the country.

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