Pension Issues in Education:Why are we talking about PSERS?

PSERS Employer Contribution Rates: 1961 through 2038

20.0

29.40

32.54

0

5

10

15

20

25

30

35

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 2036

Year

Per

cen

t

Employer Contribution Rate Projected Employer Contribution Rate (Estimated)

Source: PSERS

Under a defined benefit plan, your Under a defined benefit plan, your benefit is fixed by law.benefit is fixed by law.

Average of Highest Three Years of Salary (FAS) Average of Highest Three Years of Salary (FAS) x x

2.5% 2.5% x x

Years of Years of School ServiceSchool Service

The complete benefit formula includes calculations for any applicable non-school service and for any applicable The complete benefit formula includes calculations for any applicable non-school service and for any applicable Early Retirement Factor.Early Retirement Factor.

Under a defined benefit plan, your benefit is Under a defined benefit plan, your benefit is fixed by law.fixed by law.

$10,000 (FAS)$10,000 (FAS)x x

2.5% 2.5% x x

35 years = 35 years =

$8,750 (annual annuity)$8,750 (annual annuity)

For each $10,000 in Final Average Salary, your annuity would be $8,750 For each $10,000 in Final Average Salary, your annuity would be $8,750 (or 87.5%) if you work 35 years.(or 87.5%) if you work 35 years.

The complete benefit formula includes calculations for any applicable non-school service and for any applicable Early The complete benefit formula includes calculations for any applicable non-school service and for any applicable Early Retirement Factor.Retirement Factor.

How retirement systems workHow retirement systems workThere are, basically, two sources of revenue into any There are, basically, two sources of revenue into any retirement system: retirement system: – contributions (from employers and employees), andcontributions (from employers and employees), and– investment returns (on the assets already in the system).investment returns (on the assets already in the system).

When employer contributions are high, the system is When employer contributions are high, the system is less dependent on investment returns. less dependent on investment returns.

If Investment returns are low and/or the employer If Investment returns are low and/or the employer chooses to postpone payments into the system, then, chooses to postpone payments into the system, then, eventually, the delayed payments will catch-up in the eventually, the delayed payments will catch-up in the form of even higher required contribution rates.form of even higher required contribution rates.

At the turn of the century, the Investment returns were At the turn of the century, the Investment returns were negative and the contributions were nearly zero. negative and the contributions were nearly zero.

The “Pension Spike” results from two primary causes:

1. historically bad investment markets -- two in just one decade,

and

2. underfunding by the employers.

Graph 3

PSERS Investment Returns and Employer Contribution Rates: 1979 to 2008

5.4%

37.3%

26.0%

12.7%

2.6%

13.8%

9.2%8.1%

13.3%

1.9%

17.1% 16.0%

12.4%

-7.4%-5.3%

19.7%

12.9%15.3%

22.9%

-2.8%

-26.5%

2.7%

7.1%

12.1%14.2%

17.9%19.1%

12.2%

1.0%

-0.4%

21.5%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Years

PSERS Market Investment Returns Employer Contribution Rate

Pension funds receive income from two primary sources:Investment Returns and Contributions (employer and employee).

When investment returns are low, it is preferable to have higher contribution rates to make up for lost revenue from investments.

Source: PSERS Actuarial Valuation 2008, Table 4

$7,355,015

$3,765,047

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

Total Employee Contribution Total Combined Employer Pension Contribution

Dol

lars

(th

ousa

nds)

Over the last 10 years, PSEA members contributed twice as much for their pensions as did their districts and the state combined.

On average, school employees contributed 6.81% of their pay to their pensions in the last decade.

Total Contributions to PSERS Pension Fund: 1999-00 through 2008-09

Graph 14

PSERS Sources of Funding: Ten Year History (2000 through 2009)

Employee Contributions

26%

District / State Contributions*

15%

Investment Earnings

59%

Source: PSERS Presentation, October 15, 2009

Investment earnings are the primary source of PSERS's funding. Employer contributions have been the smallest source of PSERS's funding.

* Currently the state pays 54% and districts pay 46% of the employer contributions.

More Information on the Pension Issues

www.PSEA.org/pensions