State Pension System Update: Legislative Changes and Funding Outlook 2021
Explore the recent legislative updates impacting the State Pension System, including Acts 5, 105, and 128. Delve into the funding outlook for SERS and PSERS, employer contributions, unfunded liability, and pension funding as a share of total general fund revenues. Gain insights into the financial landscape and projections for the coming years.
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State Pension System Update House State Government Committee Testimony Matthew Knittel, Director Independent Fiscal Office August 19, 2021 August 19, 2021
Recent Legislation Act 5 of 2017: Act 5 established two hybrid defined benefit and defined contribution plans and a pure defined contribution plan for both state systems. Changes were also made to benefit accrual rates, employee contributions, and retirement ages, among others. Act 105 of 2019: Allows qualified employers to issue bonds to pre-fund 75-100% of their unfunded accrued liability (UAL). To date, two employers have made lump sum payments: (1) The Pennsylvania State University ($1.1 billion in 2020) and (2) the Pennsylvania State System of Higher Education ($825 million in 2021). Act 128 of 2020: Enacts administrative and reporting changes for SERS and PSERS. The act requires both systems to conduct prescribed stress testing of their systems. The IFO will compile those data in a report that summarizes outcomes and calculate the ratio of projected employer pension contributions to projected state revenues. August 19, 2021 1
State Pension System Funding Outlook SERS1 PSERS FY Empl. Rate 3.53% 10.87 25.01 29.51 33.24 32.93 33.59 33.48 33.81 34.51 $ State Contrib $225 745 1,622 1,897 2,049 2,115 3,1862 2,9363 2,146 2,191 System Return 3.50% 6.90 6.51 15.08 -4.55 18.75 11.11 7.00 7.00 7.00 Unfunded Liability $9,736 19,452 19,923 19,662 22,793 23,039 22,395 17,217 16,436 14,931 Empl. Rate 5.34% 11.63 25.84 30.03 32.57 33.43 34.29 34.51 34.94 35.80 $ State Contrib $337 System Return 2.99% 9.73 1.29 10.14 9.27 6.68 1.11 25.004 7.25 7.25 Unfunded Liability $19,699 37,336 42,724 44,512 44,855 44,134 44,035 44,574 44,713 44,654 Ending 2005-10 2010-15 2016 2017 2018 2019 2020 2021 2022 2023 699 1,719 2,064 2,264 2,488 2,628 2,702 2,734 2,894 Note: Millions of dollars. Data sourced from various system projections, releases and financial reports, unless noted otherwise. For year ranges (ex: 2005-10), Employer Contribution Rate and State Contributions are averages. System Return is 5-year performance as noted in system CAFR. Unfunded Liability is final year UAL. Calculations by the IFO. 1 SERS reported on calendar year basis except for Employer Contribution Rate. Includes all funds. 2 SERS 2020 employer contributions include $1.1 billion prepayment in unfunded liability from The Pennsylvania State University. 3 SERS 2021 employer contributions include $825 million prepayment in unfunded liability from The Pennsylvania State System of Higher Education. 4 PSERS FY 2020-21 returns are preliminary. Final figures are not yet available and will affect UAL and employer contribution rates once finalized. August 19, 2021 2
Pension Funding as Share of Total General Fund Revenues Annual Growth Share of Revenue FY Ends SERS PSERS Total 2016 2017 2018 2019 2020 2021 2022 2023 $665 784 840 856 877 650 931 982 $1,719 2,064 2,264 2,488 2,628 2,702 2,734 2,894 $2,384 2,848 3,104 3,344 3,505 3,352 3,665 3,876 -- 7.7% 9.0 9.0 9.6 10.2 8.7 9.5 10.2 19.5% 9.0 7.7 4.8 -4.4 9.3 5.8 Note: Dollars in millions. Excludes any funds from non-General Fund sources, including federal COVID-19 relief funds. FYE 2020 General Fund revenues increased by approximately $2.0 billion due to revenue delays resulting from the COVID-19 pandemic. FYE 2021 values reduced by same amount. Sources: Various reports issued by the Independent Fiscal Office, the State Employees' Retirement System and the Public School Employees' Retirement System. August 19, 2021 3
Rate of Return Sensitivity Analysis SERS Employer Contributions 6.00% 7.00% $2,104 $2,104 2,753 2,744 2,685 2,672 2,685 2,696 2,709 2,723 2,739 2,765 -5,736 PSERS Employer Contributions 6.25% 7.25% $4,993 $4,993 6,182 5,195 6,380 5,382 6,585 5,577 6,820 5,802 7,041 6,010 7,245 6,203 7,463 6,409 7,686 6,621 7,915 6,839 8,125 7,035 -10,368 FYE 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 8.00% $2,104 1,603 1,571 1,477 1,437 1,429 1,430 1,435 1,442 1,450 1,470 6,689 8.25% $4,993 4,291 4,469 4,651 4,867 5,065 5,243 5,437 5,637 5,843 6,026 9,548 2,224 2,204 2,128 2,102 2,105 2,112 2,120 2,131 2,142 2,165 Difference Note: Dollars in millions. Sources: Submissions supplied by SERS and PSERS in accordance with Act 37 of 2020. -- -- August 19, 2021 4
State Pension System Funding Comparison 2014 2018 Funded Ratio 98.1% 92.4 83.3 80.3 77.7 75.1 71.3 59.6 41.3 42.5 Per Capita $186 810 1,639 3,162 2,066 2,569 3,085 4,257 8,658 12,762 Funded Ratio 98.0% 85.1 80.1 75.8 82.3 79.0 70.4 54.8 39.0 38.4 Per Capita $217 1,824 2,182 4,284 1,861 2,392 3,637 5,377 11,050 14,710 State New York Delaware Georgia Ohio West Virginia Virginia Maryland Pennsylvania Illinois New Jersey Rank Rank 6 9 17 20 23 27 31 46 49 48 2 10 18 22 13 20 28 45 49 50 U.S. Total 74.8 -- 2,933 70.7 -- 3,789 Note: Per capita column equal to unfunded accrued liability divided by state population. Excludes municipal pension systems. Source: The State Pension Funding Gap: 2018 and 2014, Pew Charitable Trusts. August 19, 2021 5
