2010 The Fund earned 14.59% and increased assets from $43.2 to $45.8 billion for the fiscal year. While the investment markets began to recover, the long-term underfunding of the System continued. Historic pension reform legislation (Act 120 of 2010) was signed into law. This legislation included a series of actuarial and funding changes to PSERS and significant benefit reductions for individuals who became new members of PSERS on or after July 1, 2011. Act 120 addressed the pending employer contribution rate spike projected for FY 2013 by putting a long-term plan in place to pay off existing pension liabilities and reduced the employer normal cost to nearly 3.00% for new members hired on or after July 1, 2011. The number of membership classes increased to four: Class T-C, Class T-D, Class T-E and Class T-F. 2011 PSERS began to phase in the implementation of Act 120 of 2010. As of December 2011, 18% of new members elected class T-F while 82% of new members remained in class T-E. PSERS also continued efforts to increase efficiency in the System’s operations. During 2011 PSERS saw an increase of approximately 34% in retirements processed (13,206 in 2011 and 9,863 in 2010) and 84% of the retirement applications processed were finalized in a one-step. Historically PSERS had paid retirement benefits in two steps – a reduced initial benefit within about 10 weeks of retirement and then a final benefit with retroactive monies in about 18 months. The one-step benefits are being paid in an average of less than four weeks. For fiscal year 2011 PSERS’ investment portfolio generated a rate of return of 20.37% which resulted in $9.2 billion of net investment income. PSERS was named the “2011 Large Public Plan of the Year” during the annual Hedge Fund Industry Awards.
2012 – The PSERS Southcentral Regional Office relocated to the PSERS Headquarters in Harrisburg from its previous location in Mechanicsburg. This move enabled the office to better serve the membership in southcentral Pennsylvania while providing long-term economic savings.
PSERS continued to implement the many facets of Act 120 of 2010. While Act 120 provided historic pension reform and made dramatic progress toward addressing funding issues at PSERS, difficult budget issues remained for both the Commonwealth and school employers. Discussions about additional pension reform continued.
PSERS enhanced customer service by formalizing a process to review member accounts at periodic milestones and event triggers in order to ensure each detail of a member’s account is accurately portrayed prior to the member applying for retirement.
The Governmental Accounting Standards Board (GASB) approved a pair of related Statements that made substantial changes to the accounting and financial reporting of pensions by state and local governments and pension plans.
· Statement No. 67 significantly changed related financial reporting through note disclosures and new required supplementary information (RSI) schedules for public employee pension plans such as PSERS.
· Statement No. 68 required cost-sharing governments (employers) to report a net pension liability, pension expense, and pension-related deferred inflows and outflows of resources based on their proportionate share of the collective amounts for all the employers in the plan. Additionally, all government employers participating in the plan are required to include plan information in their note disclosures and RSI schedules.
2013 - Implementation of Acts 32 and 33 of 2013: Legislation was passed on July 1, 2013, that impacts active members who are on a military leave that began on or after July 1, 2013. The legislation primarily changed the rules regarding service credit and eligibility points earned during the military leave, purchasing this service upon return to school employment, what occurs in the event of a member’s death or disability while on a new military leave, and the employer’s role in the aforementioned activities.
PSERS continued its efforts to provide retirement benefits in a timely fashion through a one-step process. The number of benefits processed in one step increased from 74% in FY 2012 to 88% in FY 2013. This increase was achieved largely in part due to the 2012 change in PSERS’ process to review member accounts at periodic milestones and event triggers to ensure each detail of a member’s account is accurately portrayed prior to the member applying for retirement.
Implementation of the actuarial, funding, and benefit changes in Act 120 of 2010 continued throughout the year.
The multi-year technology refresh effort to upgrade PSERS’ entire core client-server based pension administrative system began. This refresh from the existing “classic” version to a new “browser-based” version not only will help ensure the viability of PSERS’ core pension administration system into the future, it will provide an enhanced baseline platform with built-in features that will make future business process and member self-service enhancements much easier to implement.
For the 30th consecutive year, the Government Finance Officers Association of the United States and Canada awarded the PSERS Comprehensive Annual Financial Report the prestigious Certificate of Achievement for Excellence in Financial Reporting.
The Public Pension Coordinating Council awarded its Public Pension Standards Award to PSERS for 2012. This award was in recognition of meeting professional standards for plan design and administration as set forth in the Public Pension Standards.
2014 - The funding issue remained the greatest challenge PSERS has faced in its history. Significant discussion on additional pension reform continued to take place.
PSERS adopted Statement No. 67 for the fiscal year ended June 30, 2014, which changed related financial reporting through note disclosures and new required supplementary information schedules for public employee pension plans. Beginning in 2013, PSERS reached out to its employers by speaking at various conferences held by the Pennsylvania Association of School Business Officials (PASBO), Pennsylvania School Boards Association (PSBA), and the Pennsylvania Institute of Certified Public Accountants (PICPA).
As of June 30, 2014, approximately 38,000 of PSERS’ active membership were under the new reduced benefit structure of Act 120. As the Act 120 membership grows, the annual savings from the lower Act 120 benefit cost structure will allow an increasing amount of employer contributions to pay down PSERS’ existing unfunded liability. An estimated $85 million is expected in cost savings during FY 2015 from the reduced Act 120 benefit tiers.
PSERS implemented the “shared risk” provisions of Act 120. With a shared risk program, Class T-E and Class T-F members share some of the risk when investments underperform. Because PSERS’ three-year return outperformed the investment performance hurdle mandated by Act 120, the member contribution rate did not change.
PSERS made enhancements to its call center operations and system, moving from a private branch exchange (PBX) based telephone system to a voice over internet protocol (VOIP) telephone system. This change enabled staff to answer thousands of more calls while also positioning PSERS to be able to implement additional enhancements in the future.
PSERS Health Options Program (HOP) reached the 20th year milestone. The Health Options Program became effective January 1, 1994, with plans underwritten by Capital Blue Cross and US Healthcare.
PSERS ranked 10th in private equity returns for large U.S. public pension funds in the Private Equity Growth Capital Council (PEGCC) annual pension study.
2015 - Executive Director, Jeffrey B. Clay, retired in March after 26 years of Commonwealth service and nearly 12 years as Executive Director of PSERS. The PSERS Board of Trustees named Mr. Glen R. Grell as the new Executive Director of PSERS effective May 1, 2015.
Act 120 of 2010 continued to put PSERS on the path toward proper funding. Since 2010, Act 120 has slowly increased employer contributions to the System and has raised the annual required contribution (ARC) to a level closer to other states. The ARC percentage received fell to a low of 27% before Act 120 was enacted. In FY 2015, PSERS received 69% of the ARC and is projected to receive 80% of the ARC in FY 2016.
PSERS provided nearly $6.6 billion in pension and healthcare benefits to its members in FY 2015. Over 90% of benefits were distributed to Commonwealth residents.
PSERS continued to make enhancements to its processes to operate more efficiently and provide quality customer service. A major focus of this past year was the enhancement of death benefit processing. Much of this manually-intensive process became automated, resulting in greater efficiency and improved communications. Additionally, approximately 90% of the retirement benefits processed in FY 2015 were paid in one step. As a result, the average number of days to process a retirement benefit decreased from an average of 23.7 days down to 19.1 days.
PSERS won the award for Large Public Plan of the Year during the Institutional Investor Magazine’s Hedge Fund Industry Awards.