Pennsylvania Gov. Ed Rendell on Wednesday signed a pension overhaul bill that aims to bring the $24 billion Pennsylvania State Employees’ Retirement System and the $43.2 billion Pennsylvania Public School Employees’ Retirement System, both of Harrisburg, to fully funded status.
The new law, approved by the Pennsylvania House on Nov. 15 and the state Senate on Oct. 14, maintains the five-year asset smoothing for the state employee system but extends the smoothing period for the school employee system to 10 years from five years. The new amortization schedule for full funding is 30 years for the state employee system and 24 years for the school employee system. The school employee system now is 79.2% funded and the state employees system, 84.4%.
The bill caps the employer contribution rate increases to 3% in fiscal years 2010 and 2011, 3.5% in fiscal years 2012 and 2013, and 4.5% in fiscal years 2013 and 2014.
The retirement age for state employees was raised to 65 from 62. School employees’ retirement ages were increased five years, to between 55 and 65, from between 50 and 60.
Also, employees of both systems will be required to work 10 years before vesting, instead of the current five years.
The law also establishes a variable contribution rate for employees of both systems, which increases half a percentage point per year, for a maximum of 2% in years when investment returns are at least 1% under the assumed rate of return for any given year. When the returns are 1% above the assumed rate of return or greater, the contribution rate is dropped by half a percentage point but cannot drop below the basic contribution rate.