PA's Teacher Retirement Plan Ranks Low In Funding Standard Nationwide

Feb 23, 2017

The Pennsylvania Public School Employees' Retirement System is falling short of its responsibilities, according to a report released Tuesday by The National Council on Teacher Quality and the EducationCounsel.

Researchers evaluated the sustainability of states' plans based on a funding standard of at least 90 percent; only seven states reached that goal, and Pennsylvania was scored at 60 percent.

“You’re supposed to be contributing for an individual teacher’s retirement as you go along. But when you miss a few payments along the way, you end up with liabilities in your system,” said study co-author Sandi Jacobs.

To fully fund the teacher's pension fund, the state would have to make a one-time infusion of $37 billion dollars. That's $6 billion more than the entire 2016-17 Pennsylvania budget.

Jacobs said, in many cases, the pension fund managers used unobtainable assumed rates of return.  Higher assumptions mean less money needs to be invested to cover retirement payments.

Shes said those rates "have not been achieved in the market for quite some time. It’s possible that (most pension plans) are even less well funded than that.”

When the rate of return is less than expected, the system falls further behind. 

According to the report, 72 cents of every dollar contributed to the system goes to paying current retirees, rather than investing for the retirement needs of current teachers.

Pennsylvania system spokeswoman Evelyn Williams said the system does not comment on reports like this.  However, she did add in an email that, “PSERS administers the system as it is designed and structured by the Retirement Code.”

To fully fund the teacher’s pension fund, the state would have to make a one-time infusion of $37 billion dollars. That’s $6 billion more than the entire 2016-17 Pennsylvania budget.

Jacobs said Pennsylvania also falls short of her group’s standard by forcing teachers to work for ten years before becoming fully vested. 

“That’s an incredibly long time," Jacobs said. “So you could be eight years into this job and if you leave, just because you cross the state line into Ohio—You’re still a teacher but now you’re teaching in Ohio—you’ve lost everything but your own contributions and some interest.”

The study suggests pension programs set minimum ages for a teacher to retire with a full pension. Vesting and design are policy issues for lawmakers to determine, Williams said. 

In its current form, shortening the time needed to become vested would put Pennsylvania's pension system further into debt.