The rate that school districts pay into Pennsylvania's badly underfunded pension fund for public school employees will go up this school year, but not by as much as had been planned.
The board of the state Public School Employees' Retirement System on Friday certified the employer contribution rate at 5.64 percent for the 2010-11 school year, up from the previous rate of 4.78 percent. The PSERS board in December had approved an increase to 8.22 percent, but the state Legislature, in a package of bills related to the state budget, ordered the board to reduce the increase to 5.64 percent.
Nearly half of the rate is paid by school districts; the rest is paid by the state.
The reduction gives school districts and the state short-term relief but does not solve the retirement system's long-term problems with its pension fund.
The fund is currently about 73.4 percent funded, and officials have been struggling to find ways to increase the fund balance without crippling cash-strapped school districts.
The PSERS plan assets dropped from $57 billion in June 2006 to $43.2 billion in June 2009, following the economic crash of 2008. As of March 31, the fund had increased to $47 billion, but it still needs to be shored up to meet its obligations.
The agency already was predicting a dramatic rise in employer contributions in order to boost the pension fund, peaking at 33.6 percent in 2014-15 and remaining above 20 percent through 2031-32. With the reduced increase, the rate spike is expected to be bigger, 33.83 percent in 2014-15 while still remaining above 20 percent through 2031-32.
Various proposals to address the pension fund have been made, including one that was passed in the state House last month and referred to a state Senate committee.
In action Friday, the PSERS board voted on two resolutions, one to approve the new rate, the second to show the board's concern regarding the pension fund.
The resolution, approved in a 12-2 vote, said the board's decision to approve the smaller increase was "made under protest" and that the Legislature's action "sets a dangerous precedent to deliberately use the fiscal code to continue the under-funding of PSERS regardless of the actual funding needs of PSERS."
It stated the board is "deeply troubled" because the directive "undermines" the board's fiduciary responsibility and increases an already unfunded liability.
The board did not take a position on any particular legislation but urged the General Assembly to enact legislation "resolving the significant funding issues facings PSERS" before adjourning at the end of the year.
The agency has three main sources of income: employer contributions, employee contributions and investment earnings.
The employee contribution is at an average of 7.34 percent.
Historically, investment earnings have been a major source of income for the agency, but those have taken hits in recent years.
Other reasons for financial problems include an employer contribution that at one point was as low as zero, costs pushed into the future and increased benefits.
First Published: July 24, 2010, 4:00 a.m.
