Pennsylvania’s Independent Fiscal Office has released an actuarial note estimating that a current bill proposing the state increase its required pension payments would save more than $18 billion over the next 33 years.
According to the actuarial note, House Bill 778 is projected to save the state, on a cash-flow basis, $18.2 billion in employer contributions through fiscal year 2049-2050. That is equivalent to a savings of $5.1 billion at a present value of 3.6%.
For the first five years, the bill is projected to increase employer contributions by $2.5 billion on a cash-flow basis, or $2.2 billion at a 3.6% present value. For fiscal years ending between 2023 and 2035, employer contributions are projected to increase by $8.3 billion on a cash-flow basis, or $5.3 billion at a 3.6% present value.
After fiscal year 2034-35, the legislation’s savings accumulate with reductions in employer contributions over the last 15 years of the projection period expected to be $28.9 billion on a cash-flow basis, or $12.6 billion at a 3.6% present value. However, the bill does not say where the funds to make the required additional employer contributions would come from.
The proposed legislation would accelerate the amortization of the unfunded accrued liabilities of the Public School Employees’ Retirement System (PSERS) and the State Employees’ Retirement System (SERS). The bill also eliminates the employer contribution collars, and requires that the differences between returns and actuarial assumptions be funded in level dollar annual contributions over a period of 20 years. The bill does not change the benefit provisions of current or future members.
The bill would require an estimated 14% increase in state pension funding for fiscal year 2018 compared to 2017, and each year after, pension contributions would increase by about 2.6%.
The reported unfunded accrued liabilities for PSERS totaled $42.7 billion, and the unfunded accrued liability would be $50 billion if the market value of assets from that valuation is substituted for the actuarial value. The reported unfunded accrued liabilities for SERS totaled $19.5 billion, and the unfunded accrued liability would be $20.3 billion if the market value of assets from that valuation is substituted for the actuarial value.
As of the end of 2016, the Pennsylvania Public School Employees Retirement System had assets of nearly $50 billion, and more than 260,000 total members, and the Pennsylvania State Employees Retirement System, which is 58.7% funded with an unfunded liability of $19.5 billion, had total fund assets of $26.3 billion, and more than 239,000 total members. As of September 30, 2016, the Pennsylvania Municipal Retirement System’s investment portfolio had a market value of just over $2.1 billion, and more than 15,500 members.