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Pension Funding

SERS is a governmental (non ERISA), Defined Benefit (DB) pension plan.  DB plans are designed to remain financially sound through regular funding each year from each of three funding sources:

  • Employee/Member Contributions
  • Employer Contributions 
  • Investment Earnings 

Historically, investment earnings have been the primary source of funding.  Over the past 10 years alone, investment income has contributed 69% of the Fund; while members have contributed 21% and employers just 10%.   

For more than a decade, employer contribution rates have been 5% of payroll or lower; however, rates are to begin climbing in 2010-11, jump sharply in 2012-13, peak in 2013-14 and remain high for the foreseeable future.  This increase is often referred to as the “Rate Spike and Plateau.”  

For several years SERS has been anticipating that rates would have to rise significantly in order to pay the system’s unfunded liability.  The unfunded liability includes costs from a combination of items, including:

  • 2000-2002 down investment markets 
  • Global economic downturn in 2008 
  • Benefit enhancements in 2001 for active members (Act 9)  
  • 2002 COLA for retired members (Act 2002-38) 
  • Demographic and salary experience 
  • Cost of deferral techniques which changed the amortization schedule of gains and losses, temporarily and artificially suppressing employer contribution rates (Act 2003-40) 

While strong investment returns prior to 2008 had nearly eliminated the expected rate increase, the global economic collapse of 2008, which resulted in severe investment losses by most institutional investors, including SERS, brought the rate spike back.   

The resources presented here are to help SERS members, Legislators and their staff, members of the media and taxpayers better understand SERS and the pension funding issues facing the Commonwealth.

 Pension Funding Resources
    Member Update:
Governor Signs Pension Reform Legislation

On November 23, 2010, the Governor signed HB 2497 into law as Act 120. This legislation preserves all the benefits now in place for all current members but mandates a number of benefit reductions for future members effective January 1, 2011 (except that the effective date is the expiration of collective bargaining agreements for State Police Troopers, Capitol Police and Park Rangers, and December 1, 2010 for legislators newly elected in November. State Police would retain the special retirement benefits they currently receive as a result of a collective bargaining arbitration award known as the DiLauro Award).

Member Update:
PA House Passed Pension Legislation;
Bill Now Moves to the Governor for Final Approval

On November 15, 2010, the Pennsylvania House of Representatives concurred in the Senate amendments to HB 2497, moving the bill to the Governor for final approval. 

    Member Update explaining HB 2497, as amended by the Senate
On October 14, 2010, the bill as amended passed in the Senate and moved back to the House for concurrence. 
    PERC Note on HB2497 As Amended By The Senate
The Public Employee Retirement Commission (PERC) issued an actuarial note detailing the policy issues identified in changing the actuarial funding methods and in establishing reduced benefit tiers for new employees for both SERS and PSERS (Public School Employees’ Retirement System) as provided in HB 2497 as amended by the Senate.  This bill is intended to directly address the impending rate spike.  HB 2497, as amended by the Senate, proposes to moderate future rate increases through a 30-year actuarial “fresh start” reamortization of liabilities and the imposition of “collars” to restrict year-to-year rate movements.  Although the House amended version of the bill included a provision to convert from level dollar to level percent of pay amortization, the Senate amended the bill to retain the current law funding methodology of level dollar amortization.  It also establishes a new and higher rate floor.  The bill as amended would establish reduced benefit tiers for future employees only.
    Senate Adopted HB 2497 Costs and Savings Graph
SERS has prepared a graph that illustrates the fiscal impact of the various provisions of the bill. 

Rate Spike and Plateau; Causes and Potential Options
(May 21, 2010 - 1.2 MB PDF)

This document details the SERS benefit structure, history of funding/underfunding, development of the employer rate spike and plateau, and options to address it -- including a comparison of SERS’ current funding projections to projections based on the Governor's 2010 funding proposal and the funding proposal introduced in HB 2497 at the time this presentation was produced (without the amendment providing for reduced benefit tiers for future employee only). 


HB 2497 And The Pension Rate Spike
(June 7, 2010 - 1.1 MB PDF )

This document, prepared by PSERS & SERS upon request from the House Democratic Caucus, details the impact HB 2497 (at the time this presentation was produced -- without the amendment providing for reduced benefit tiers for future employee only) would have on the employer contribution rate spike and plateau facing both state pension systems.


Funding Process & Actuarial Status - (2.1 MB PDF)
Sect. 7 of SERS’ 2010 Supplemental Budget Information book
This information provides a detailed narrative on the funding of the System. 

    SERS’ Comprehensive Annual Financial Reports (CAFR)
Each year pension systems prepare a financial report detailing their assets, liabilities,
revenues and expenditures in a standardized format that conforms to Government Accounting
Standards Board (GASB) standards. The SERS CAFR details the System’s assets and liabilities
at the end of the fiscal year, providing a comprehensive picture of its financial condition.
    SERS’ Actuarial Valuation Reports and Experience Studies
(Including Key Results of 2009 Actuarial Valuation)
Each year SERS’ actuary conducts an actuarial valuation to determine the amount of money the
System needs to pay all its obligations including lifetime pensions to all eligible members.
The actuarial valuation captures demographic characteristics of the System’s membership and
identifies employer contribution rates necessary to adequately fund the System.  
Every five years SERS’ actuary completes an investigation of actuarial experience to study
the actual economic and demographic experience of the System over the past five years, such
as mortality rates and salary growth, and to adjust actuarial assumptions going forward to
reflect that most recent experience.
    PSERS & SERS – An Update (April 6, 2010 - 1.9 MB PDF)
The pension funding situation impacting SERS is also impacting PSERS (Public School  
Employees’ Retirement System).  Several legislative committees have invited both SERS and
PSERS to public hearings to discuss the issue and possible options.  This presentation is
the most recent joint presentation from the two state pension systems.















































Last published: 08/08/2011 11:48 AM