Administration June 3, 2006

PA Taxpayers to Face Unaffordable Pension Costs

March 6, 2006 (PLANSPONSOR.com) - "Without significant changes in the design of both pension and retiree health care benefits plans, the taxpayers of Pennsylvania will likely be facing unaffordable costs," said Rick Dreyfuss, a former Hershey Co. benefits manager after reviewing the state's two major public employee pension systems.

Reported by

Rebecca Moore

The Harrisburg, Pennsylvania Patriot News reports that Dreyfuss suggests changing the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS) from defined benefit plans to defined contribution type plans. However, fund officials said such a change would only apply to new employees and would have little effect on the funding situation.

Changes enacted in 2001 increased retirement benefits for 110,000 active state workers and 234,000 active teachers by 25%, according to the Patriot News. Legislators could take a 50% boost in their own pension formula. Fund surpluses were expected to foot the cost of the enrichments, but investment returns have dipped.

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PSERS projects that state and local taxes earmarked to support the fund will need to more than triple by 2012 from the 2006-07 tab of $763 million. School districts, which together with the state will pay 6.46% of their payroll to the school pension system in 2006-07, may see that figure increase to 22.5%, or $2.6 billion, within six years. The 4% of payroll used by SERS could jump to 23.5%.

SERS officials said their projections have not been updated to reflect that system’s 14.9% investment gain from 2005.