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House Republican Appropriaons Commiee

The Chairmans ReportState Budget Update: June 14, 2010

House Bill 2497 proposes o make changes to the methodology to calculate the employer contribuon rates of tstates two pension systems -- the Public School Employees Rerement System (PSERS) and the State EmployeesRerement System (SERS). The bill would address the pending spike in the employer contribuon rates for the two

systems by incrementally increasing the rates to help lessen expenditures in the state budget and for school distric

House Republicans have asserted that any pension-related legislaon must also contain necessary reforms to hel

the state beer manage its future expenses. In turn, an amendment to House Bill 2497 has been draed (A07493)

that would cover several key reforms. This amendment was draed through bipar san efforts.

Rep. Bill Adolph

House Bill 2497

As introduced by Democrat Appropriaons Commiee Chairman Rep. Dwight Evans, t is legislaon would make

the following changes to both SERS and PSERS:

- e-amorze all unfunded liabilies over a 30-year period.

- Establish a final contribuon rate for fiscal year 2010-11 at 5 Percent for SERS and 5.64 Percent for PSERS

(This includes the .64 Percent for premium assistance).

- Implement limits on the increases in the employer contribuon rates. Annual Increases would be collared

at the following rates in the coming fiscal years:

- 2011-12: 3 Percent growth over prior year.

- 2012-13: 3.5 Percent growth over 2011-12.

- 2013-14 and Thereaer: 4.5 Percent over prior year.

- Change the asset smoothing period to 10 years for PSERS. The SERS asset smoothing period will remain a

five years.

Pension Reform Measures - Amendment A07493

he following is a summary o the amendment to HB 2497 to reflect reform measures being proposed to he staension systems (SERS and PSERS). Changes will only impact new hires and will not effect the benefits of current

SERS and PSERS members.

EFORM MEASURES

- escind Act 9 (2001) Benefits rovided to employees under Act 9 would be rescinded for all new members

beginning January 1, 2011 for SERS and July 1, 2011 for PSERS. Effecve date for new legislators would be

December 1, 2010. None of the changes would apply to the Judicial Branch.

ERS Members (Class A-3)

- Accrual Rate (Mulplier) for each year of service will be 2 Percent of final average salary. This rate

will apply to both legislators and state employees. The current rate for legislators is 3 Percent; for state

employees the rate is 2.5 Percent.

- The employee contribuon rate will remain at 6.25 Percent for state employees. The rate for new

legislators will drop from 7.5 Percent to 6.25 Percent.

- These new members of SERS have a 45-day period where they may opt into a new Class A-4, which would

provide an accrual rate of 2 5 Percent with a employee contribuon rate of 9.3 Percent.

Connued

8/9/2019 PA House Appropriations Committee - Chairman's Report

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Budget Update: June 14, 2010

Pension Reform Measures - Amendment A07493

SERS Members (Class A-3)

- Vesng periods will increase from 5 to 10 years for all ew SERS members.

- Rerement age increases by 5 years from the current rerement age for all new members.

- No Opon 4 (lump sum payout) will be permied for new members upon rerement.

P ERS Members (Class T-E)

- ccrual Rate (Mul lier) for each year of service will be 2 Percent of final average salary. This rate

will apply to public school employees. The current rate for this group is 2.5 Percent.

- The employee contribuon rate will remain at 7.5 Percent.

hese new members of PSERS have a 45-day period where they a opt into a new Class T-F, which wou

provide an accrual rate of 2.5 Percent with an employee contribuon rate of 10.3 Percent.

- Vesng periods will increase from 5 to 10 years for all new PSE S members.

- Rerement age increases to 65 with 3 years of service. The current provisions allow rerement at age 62 with

1 year of service. Keeps rerement ages consistent with SERS.

- No Opon 4 (lump sum payout) will be permied for new members upon rerement.

- House Bill 2497 calls for an employer contribuon rate of 5.64 Percent for PSERS. The actuarial rate cerfied by

PSERS is marked at 8.22 Percent. This amendment would includes a provision that provides a window for the

employer contribuon rates, nong that they cannot be less than 5.64 Percent, but also no more than 8.22 Perce

The exact rate will be subject to the amount approved in the final state budget (General Appropriaons Bill) for

Fiscal Year 2010-11.

- Note: Rate collars for the following fiscal years will ot be effected by this amendment.

REFORM MEASURES

The following points are applicable to both SERS and PSERS in regards to the reform measures addressed on the

p evious page:

- he opt-in Class A-4 (SERS) and Class T-F ( SERS) is viewed as being revenue neutral and would come at n

addional cost to the systems. he increased employee contribuon for each class would cover addion

expenses.

- Current employees in both systems are restricted from the new opt-in classes.

- Employees who have previously made rerement contribuons under one of the two systems and le, o

to later return, will not be effected by the new provisions. The excepon to this rule would be for those

employees who le one system to join the other aer the effecve dates. Those ho would fall under th

rule would be subject to the changes of the new system they join

- The vesng period for disability benefits for PSERS and SERS members will remain at 5 years. State troope

and enforcement offi cers would be eligible for disability benefits as soon as they begin their me of servi

- New employees subjected to the changes in this amendment would be eligible to withdraw their employ

contribuons plus 4 Percent statutory interest if they terminate their service prio to becoming vested