McGinnis: PSERS Continues on a Path to Insolvency
– Last Wednesday’s presentation by the Pennsylvania School Employees’ Retirement System (PSERS) Board of Trustees of its annual valuation report confirms that PSERS continues on a path to insolvency, according to Rep. John McGinnis (R-Blair).
“The consequences of pension insolvency are dire, extensive and irreversible,” said McGinnis.
McGinnis noted that for the first time, PSERS liabilities topped $100 billion and its unfunded liability, measured against the market value of its assets, is now more than $50 billion and rising.
“The funding ratio of PSERS continues to fall and is now south of 50 percent,” said McGinnis.
“And while PSERS claims that full contributions are now being made, that is not the case. Its liabilities are understated, its assets are overstated, its assumed rate of return on investments is overly optimistic and its amortization period of 24 years for its debt is far too long. All of these factors reduce its contribution calculation. While legislated collars are no longer in operation for PSERS, paying 100 percent of a deficient funding amount is a de facto collar and not any different than what has been going on for the past 15 years.”
McGinnis warns that time is fast running out for dealing with the pension crisis. While he notes that the General Assembly will be focused on a $1 billion to $2 billion “structural deficit” for the 2017-18 budget, the fact is the state pension systems are a $70 billion deficit, with $5 billion of interest expense per year, that has been growing at an average of 8 percent a year since the passage of Act 120 of 2010.
“When the pension assets run dry, then all retirement payments will have to come out of the Commonwealth’s General Fund,” said McGinnis. “This will mean that 35 percent to 45 percent of general appropriations, in perpetuity, will be needed simply to cover payments to retirees. That would leave huge shortfalls for the necessary expenses of state government operations, including education and human services.”
McGinnis is the author of the book, “Future Forsaken,” which details the history and economics of the pension crisis in Pennsylvania.
Representative John McGinnis
79th Legislative District
Pennsylvania House of Representatives
Media Contact: Andy Briggs
RepMcGinnis.com / Facebook.com/RepMcGinnis