Member Contribution Information for New Members
As a member of PSERS, your employer withholds a percentage of your salary from your pay and submits it to PSERS. It is then posted to your retirement account. PSERS has four membership classes: Class T-C, Class T-D, Class T-E, and Class T-F. Your membership class, in part, determines your member contribution rate. The rate of the contribution you pay towards your account is based on the date you were hired and membership class. The member contribution rates are set by law. You cannot choose to lower or raise your contribution amount.
Member Contribution Rates
A Class T-C member who enrolled in PSERS before July 22, 1983, has a contribution rate of 5.25 percent. A Class T-D member who enrolled in PSERS before July 22, 1983, has a contribution rate of 6.50 percent.
A Class T-C member who enrolled on or after July 22, 1983, will have a contribution rate of 6.25 percent. A Class T-D member who enrolled on or after July 22, 1983 will have contribution rate of 7.50 percent.
Those who become members for the first time on or after July 1, 2011, may choose between two classes of membership in PSERS, and therefore, two different base contribution rates.
New members electing Class T-E:
- The base member contribution rate is 7.50% with “shared risk” contribution levels that may fluctuate between 7.50% and 9.50%.
New members electing Class T-F:
- The base member contribution rate is 10.3% (base rate) with “shared risk” contribution levels that may fluctuate between 10.30% and 12.30%.
An Explanation of Shared Risk
With a “shared risk” program, Class T-E and Class T-F members benefit when investments of the fund are doing well and share some of the risk when investments under perform. With a Class T-E or Class T-F membership, your contribution rate will stay within the specified range (Class T-E - 7.50% and 9.50% or Class T-F - 10.30% and 12.30%), but may increase or decrease by 0.5% within the specified range once every three years, starting in July 1, 2015. Your member contribution rate will never go below the base rate or above the highest percentage rate. If however, it is determined that PSERS is fully funded at the time of the comparison, your member contribution rate will revert to the base employee contribution rate for your membership class.
Earnings for Which Contributions Must Be Withheld
Retirement contributions must be paid on your qualified earnings. Qualified earnings are:
Salary – The money paid to you by your employer for the job you hold.
Overtime - Wages paid over and above your regular salary.
Extracurricular activities - Wages paid for additional duties performed after normal working hours, such as earnings paid to coaches, ticket takers, chaperones for school activities, yearbook advisors, etc.
Jury duty - Salary paid while serving on jury duty.
Difference payments – Payment made to a teacher who is on leave and the difference between the teacher’s regular, full salary and the salary paid to the substitute teacher who fills in for this teacher.
Incentive payments – Incentive payments that meet the following criteria:
- The payment must be tied to work performance.
- There is an objective means to calculate the payment.
- The employer is contractually obligated to make the payment if the performance standards are met and are not discretionary or subjective.
- The payment is a significant part of your income.
Paid Leave – Salary paid while on sick, annual, or personal leave.
Maximum Earnings Subject to Contributions
IRS Section 401(a) (17) of the Internal Revenue Code limits the amount of compensation subject to retirement contributions for active employees entering PSERS membership on or after July 1, 1996. The limit can change from year to year. The salary limit for the 2016 tax year is $265,000.00.
If you earn more in a calendar year than that years limit, all salary exceeding the limit should not have retirement contributions withheld. If the determination period consists of fewer than 12 months, the compensation limit for that year will be multiplied by a fraction, the numerator of which is the number of months in the determination period and the denominator of which is 12.
Interest on Your Contributions
The interest on your contributions is guaranteed while you are an active contributing member of PSERS. Contributions in your account earn four (4) percent interest compounded annually.
Taxes and Your Contributions
Contributions are excluded from your gross income for federal tax purposes only and are federally tax deferred. Investing Your Contributions Unlike many private retirement plans, it is not up to you to choose how and/or where your contributions are invested. It is up to the PSERS Board of Trustees to act as the fiduciaries of the Fund and oversee PSERS investments. This includes the investment of the contributions you make to PSERS. As a defined-benefit plan, and regardless of the investment performance, the Commonwealth of Pennsylvania guarantees your annuity. The overall investment objective is to provide benefits to members through a carefully planned and well-executed investment program, ensuring a well diversified investment portfolio designed to minimize investment risk. The members of the Board and staff are held to the Prudent Investor Standard. This Standard ensures that a degree of judgment, skill, care, caution, discretion, and loyalty are exercised when dealing with PSERS investments.
Additional Investment Information
Detailed information pertaining to PSERS investments can be viewed via the PSERS Investment Web page and on the Active Member Web page, PSERS Investments.