PSERS: Billions in Pa., local school pension dollars still not enough

Pennsylvania school district property owners and the state Treasury paid a combined $2.6 billion into the Pennsylvania Public School Employees' Retirement System (PSERS) in the year ended June 30. The total should top $3 billion this fiscal year and is scheduled to rise again into the future.

That's not counting investment profits on the pension system's investments (just 3% in the fiscal year ended June 30) or employee contributions (which are also, of course, funded by taxpayers). Annual increases at far above the rate of inflation have squeezed flat school district budgets around the state (see my stories and data on the local school and police pension funding here); in Quakertown school board members voted in protest to delay their PSERS contributions; other districts have considered similar actions.

Yet the payments aren't enough to keep PSERS from getting broker, says chief investment officer James Grossman. PSERS "continues to be underfunded by school employers and the commonwealth," Grossman noted in this statement Tuesday.

How's that possible -- when all the school districts inspected by state Auditor General Gene DePasquale lately report they are indeed making their legally required contributions and sometimes a bit more?

Because "the rate is artificially being suppressed, as it has been for many years," PSERS spokeswoman Evelyn T. Williams explains:

Taxpayers last year contributed an extra 21 cents for every $1 of school payroll last year to help fund PSERS and keep its multibillion-dollar deficit from growing. It would have been more like 27 cents, Williams says, if pension actuaries had been able to set payments based on the system's actual financial need, without the state-imposed "rate collar" Act 120 set in place to delay pension payments into the future, so they'll be higher in years to come. The surcharge will be 26 cents this year, and is expected to stabilize above 30 cents over the next few years.

It's a slow, expensive way of coping with an old, expensive problem: Since then-Gov. Tom Ridge and most of the General Assembly voted to raise their own pensions and those of hundreds of thousands of future retirees, without raising money to pay for it all, back in 2001, and especially since the 2008 investment market collapse (which forced pension plans to sell illiquid private investments and other assets, draining funds the ensuing market rally didn't fully restore), PSERS, like the New Jersey and the Pennsylvania state workers' pension systems and municipal pensions in Philadelphia and other communities with more retirees than city workers, have kept spending down their assets and bringing closer the day when they'll require multibillion-dollar cash infusions, or go broke and force public bankruptcy and arbitrary pension cuts.

You can blame, and credit, Act 120, the 2010 Pennsylvania pension law, for slowing what would otherwise have been even more radical pension payment increases -- and spreading them instead to future taxpayers.