The state pension boards testified before the General Assembly this week and reported a combined unfunded liability of more than $56 billion. Contrary to claims that “we should let Act 120 work,” the outlook for Pennsylvania’s state pension systems continue to worsen.
Here’s a glimpse at how the unfunded liability has increased since 2010:
The Pennsylvania School Employee Retirement System (PSERS) Budget Report explains that its unfunded liability is due to a combination of funding deferrals, subpar investment performance, and benefit enhancements:
Each year, PSERS payments consume a growing percentage of the Pennsylvania's ever-increasing education spending. In 2010, pensions accounted for roughly 3 percent of state education spending. In the current fiscal year, they account for 16 percent of the total education share:
The State Employees Retirement System (SERS) announced decreased investment fees, from 96 to 59 basis points. Although this results in modest cost savings, the 59 basis points are still significantly higher than many passively managed mutual funds.
Also of note, from The PLS Reporter:
Both systems said they are keeping their current 7.5 percent assumed rate of return despite not meeting that amount in a short-term look back.
Certainly, the public pension crisis is the most urgent policy challenge facing the commonwealth. It is driving property tax increases and credit downgrades across the state. The sooner Pennsylvania moves to a defined contribution retirement plan for new hires, the better.