The Widening Gap in PennsylvaniaCenter on Regional Politics – January 18, 2012

$757 billion

$2.31 trillion$627 billion

$33 billion

Pensions – $3.07 trillion

75 percent funded

Widening Gap UpdateIn 2010, states continue to lose ground in their efforts to cover the long-term costs of their employees’ pensions and retiree health care.

Retiree Health Benefits – $660 billion

5 percent funded

Funded

Unfunded

Source: Pew Center on the States, 2012 www.pewstates.org/state-pensions-update

Widening Gap Update – Public Sector PensionsThirty-four states had less than 80 percent of their pension promises funded in 2010.

Source: Pew Center on the States, 2012 www.pewstates.org/state-pensions-update

A Growing Annual Bill

The annual recommended contribution for states’ pension promises has grown 175 percent since 2000.

Source: Pew Center on the States, 2012

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

10

20

30

40

50

60

70

80

Billions of dollars

www.pewstates.org/state-pensions-update

Pennsylvania Pension Plans – 2011 Funding LevelsThe state’s two pension plans had a combined shortfall of $41 billion in 2011 and were only 68 percent funded compared to a $10.8 billion surplus and 115 percent funding ratio in 2001.

Source: Pew Center on the States, 2013

Plan Assets Liabilities Unfunded Liability

Percent Funded

Share of Total Shortfall

State Employees' Retirement System $27,618 $42,282 $14,663 65.3% 36%Public School Employees' Retirement System $59,141 $85,640 $26,499 69.1% 64%

Total$86,760 $127,922 $41,163 67.8% .100%

All dollar figures in millions

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

Assets Liabilities

Pennsylvania Pension Plans – Growing Total Commonwealth Employer ContributionsAs the unfunded liability grows, so does the commonwealth’s contribution. It is not until FY 2018-2019 that the cost growth begins to taper down and level off. However, this does not account for another economic downturn that could further increase costs.

Source: The Keystone Pension Report, 2012

Fiscal YearTotal

Commonwealth Contributions

Dollar Increase

Percent Increase

2010-11$709

2011-12$1,064 $355 50%

2012-13$1,534 $470 44%

2013-14$2,231 $697 45%

2014-15$2,971 $740 33%

2015-16$3,752 $781 26%

2016-17$4,346 $594 16%

2017-18$4,765 $419 10%

2018-19$4,968 $203 4%

2019-20$5,164 $196 4%

All dollar figures in millions

Pennsylvania Pension Plans – SERS and PSERS Required and Actual ContributionsAct 40 of 2003 allowed the state to avoid a fiscal shock of increasing employer contributions by recognizing gains more quickly and losses more slowly. The Act resulted in SERS and PSERS underfunding of more than $5.9 billion.

*Data for SERS from SERS 2011 CAFRSource: The Keystone Pension Report, 2012

All dollar figures in millions

SERS and PSERS Annually Required Contributions and Actual Contributions

Fiscal Year SERS ARCActual State Contribution

Funding Shortfall

PSERS ARCAcctual State Contribution

Funding Shortfall

$ % $ %

2004-05 $105.20 $128.70 $23.50 22.34% $409.30 $228.80 ($180.50) -44.10%

2005-06 $319.20 $172.60 ($146.60) -45.93% $655.20 $254.50 ($400.70) -61.20%

2006-07 $548.70 $224.00 ($324.70) -59.18% $861.10 $382.80 ($478.30) -55.50%

2007-08 $617.30 $242.90 ($374.40) -60.65% $989.90 $451.10 ($538.80) -54.40%

2008-09 $584.20 $244.70 ($339.50) -58.11% $983.70 $360.60 ($623.10) -63.30%

2009-10* $643.90 $251.80 ($392.10) -60.89% $1,033.00 $342.60 ($690.40) -66.80%

2010-11 $866.80 $300.40 ($566.40) -65.34% $1,256.30 $408.60 ($847.70) -67.50%

TOTAL $3,685.30 $1,565.10 ($2,120.20) -57.33% $6,188.50 $2,429.00 ($3,759.50) -60.70%

State policy makers need to accomplish three main tasks:

1. Create a credible plan to reduce the funding gap over time in a fair way

2. Make sure the plan is sustainable and doesn’t put the state at risk of future funding challenges

3. Ensure that the compensation being offered help the state recruit and retain a talented public sector workforce

Different states are pursuing very different solutions in an attempt to get to the same place: a fiscally-responsible, sustainable pension plan that can still help recruit and retain a talented workforce.

www.pewstates.org/state-pensions-update

Pennsylvania City Pension Plans – Philadelphia and PittsburghThe commonwealth’s two largest city pension plans are woefully under funded. • Philadelphia levied a sales tax to fund the plans and Mayor Nutter has called for city workers to be enrolled in a hybrid plan. • Pittsburgh’s plans were on the verge of a state take over before they passed an ordinance to levy a 37.5 percent parking tax

and divert its revenue to the plans.

Source: Pew Center on the States, 2013 All dollar figures in millions

City of Philadelphia Pension Data

Year Assets LiabilitiesUnfunded Liability

Percent Funded ARC

Actual Contribution

Percent Contributed

2010 $11,324 $18,612 $7,288 60.84% $820 $396 48.27%2009 $11,401 $18,337 $6,935 62.18% $761 $531 69.75%2008 $11,434 $16,325 $4,891 70.04% $745 $521 69.95%2007 $10,903 $15,739 $4,836 69.27% $724 $518 71.55%

City of Pittsburgh Pension Data

Year Assets LiabilitiesUnfunded Liability Percent Funded ARC

Actual Contribution

Percent Contributed

2010 $393 $1,012 $619 38.87% $45 $86 190.42%2009 $393 $1,012 $619 38.87% $45 $29 66.24%2008 $339 $990 $650 34.28% $38 $23 60.27%2007 $339 $990 $650 34.28% $38 $23 60.21%

Lessons for Pennsylvania

Pennsylvania's pensions are on an unsustainable course and will run out of money if policy is not changed.

Once the state pays debt service, pensions, and federal entitlement obligations, there is not enough money left to pay for all remaining programs and services.

This funding crisis emerged over a decade as a result of contributions that fell short of sustainably funding the system, benefit increases that were not paid for, and expected investment returns that did not materialize.

Comprehensive reform is needed to both close the funding gap in a credible way and to offer a new plan going forward that will be sustainable, affordable, and secure and will help recruit and retain the talented public workers Pennsylvania needs.

www.pewstates.org/state-pensions-update

www.pewstates.org

Kil Huh David DraineDirector, Research Senior Researcherkhuh@pewtrusts.org ddraine@pewtrusts.org (202) 552-2067 (202) 552-2012

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