PA Auditor General: Pension Funding Crisis could be Imminent

September 27, 2006 ( - The administration of Pennsylvania's two largest public pension funds must act swiftly in order stave off a possible funding crisis, the state's auditor general warned, pointing to a $11-billion shortfall.

The audit by state auditor general Jack Wagner found, among other things, that the State Employees’ Retirement Board (SERS) and the Public School Employees’ Retirement Board (PSERS) were fully funded at the end of 2002. At the end of 2005, the state employees’ retirement fund was 93% funded and the school employees’ fund, 85% funded.

“Now is the time to act, to make sure that the state’s pension obligations do not escalate into a financial crisis that threatens the economic competitiveness of Pennsylvania or the long-term prosperity of its residents,” Wagner said at a press conference.

According to a release from the Department of the Auditor General, the shortfall may only be exacerbated significantly by 2013, when the number of retired state employees is projected to expand from about 101,000 to about 115,000 and the number of retired public school employees is expected to widen from about 157,000 to 210,000.

The auditor general urged the pension funds to improve the way board members monitor and report conflicts-of-interest; to formalize professional training for board members; and to beef up internal audit operations.

Among Wagner’s recommendations to the General Assembly and the governor to help fend off a greater deficit include:  

  • Impose a moratorium on adding new retirement benefits until the pension funds’ shortfalls are fixed.
  • Return the vesting period to 10 years, from five years, for new hires.
  • Identify other sources of revenue, such as gaming income and any other new funding sources that may be available in the future, to help fund pension costs.
  • The General Assembly should establish a fund that would make additional contributions to the pension funds during years of budget surpluses.
  • A statute that requires the commonwealth to make annual contributions to SERS beyond 2007.

The two audits were prompted by agreements reached in April 2005 that settled a lawsuit between the state’s auditor general and the two public pension funds (See PA Pension Funds Agree to Investment Audit ) over whether Wagner could legitimately inspect the funds’ investment decisions.

A Commonwealth Court ruled that the auditor is authorized by the state constitution and state law to examine SERS and the PSERS, which together oversee the retirement plans of about 623,000 retired and active members (See  PA Fund Audit Battle Goes to Auditor General ).

For the 299-page SERS audit report go here .

For the 323-page PERS audit report go here .