Grell’s Proposal Would Open Debate on Funding of PSERS
Hampden Township lawmaker says action must begin now, not later
With school district pension costs expected to skyrocket in the next few years, Rep. Glen Grell (R-Cumberland), with support of the Pennsylvania School Boards Association (PSBA), today unveiled House Bill 2135 that would jump start discussions to address the long-term need to reform the Public School Employee Retirement System (PSERS).
“In the next couple of years, school districts throughout Pennsylvania will realize sizeable increases in retirement costs, which are ultimately borne by school property taxpayers,” Grell said, noting that for the 2010-11 school year, districts will be required to increase pension payments from the current 4.78 percent to 8.22 percent. “We must devise a solution that protects those who fund school districts and current and future teachers.”
For nearly a decade, school districts have only been required to pay an artificially reduced rate to fund the retirement system. As a result, by 2016, this rate will spike to nearly 35 percent and remain at extremely high levels through 2032. This is not only a short-term problem, but also a long-term predicament that cannot be ignored.
Currently, all members of PSERS receive a defined benefit at retirement that is calculated according to a specific formula that takes into account years of service, the three highest years of salary and a multiplier. The PSBA proposal would not have any effect on any current retiree or on any current school district employee. In addition, it would retain the qualities of the current plan even for future employees, but at a lower benefit level than the current system provides. For example, this proposal reduces the employee contribution rate from the current 7.5 percent for most employees to 3.25 percent, and the multiplier would be reduced from 2.5 percent to 1 percent. In addition, the vesting time for the defined benefit portion of the plan would be increased from the current five years to 10 years.
“The current pension system is not reflective of what is offered to employees in the private sector,” Grell noted. “The current system is vulnerable to continued market fluctuations and the Legislature must take action now to avoid greater financial difficulties in the future.”
Grell, who is a member of the PSERS board of directors, noted that this reduction in benefits for future employees would, over the long-term, make the system more affordable for the Commonwealth, taxpayers and school districts. In addition, since the lower benefit level would apply only to individuals who become members of PSERS after July 1, 2010, the system would not suffer any decrease in its ability to fund the retirement benefits of current annuitants and current members of the system.
Under this legislation, a defined contribution provision would be created to allow members to have greater control over a portion of their contributions by permitting them to invest in one or more investment options created by PSERS. Members would be required to contribute at least 3 percent of their salary in an Individual Annuity Savings Plan. Employees would be allowed to invest more than 3 percent of their salary up to the Internal Revenue Services’ (IRS) limit.
“I applaud PSBA for its efforts in bringing this legislation to the table in an attempt to address this problem now, not after it’s too late,” Grell said. “I strongly urge my colleagues in the House, especially those in leadership, to take up this issue immediately for the benefit of taxpayers throughout Pennsylvania.”
Rep. Glen Grell
87th District
Pennsylvania House of Representatives
(717) 783-2063
Contact: Tim Eller
(717) 260-6242
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