House Republican Appropria�ons Commi�ee
The Chairman’s Report Rep. Bill Adolph
State Budget Update: June 14, 2010
House Bill 2497 proposes to make changes to the methodology to calculate the employer contribu�on rates of the
state’s two pension systems -- the Public School Employees’ Re�rement System (PSERS) and the State Employees’
Re�rement System (SERS). The bill would address the pending spike in the employer contribu�on rates for the two
systems by incrementally increasing the rates to help lessen expenditures in the state budget and for school districts.
House Republicans have asserted that any pension-related legisla�on must also contain necessary reforms to help
the state be�er manage its future expenses. In turn, an amendment to House Bill 2497 has been dra�ed (A07493)
that would cover several key reforms. This amendment was dra�ed through bipar�san efforts.
House Bill 2497
As introduced by Democrat Appropria�ons Commi�ee Chairman Rep. Dwight Evans, this legisla�on would make
the following changes to both SERS and PSERS:
- Re-amor�ze all unfunded liabili�es over a 30-year period.
- Establish a final contribu�on rate for fiscal year 2010-11 at 5 Percent for SERS and 5.64 Percent for PSERS
(This includes the .64 Percent for premium assistance).
- Implement limits on the increases in the employer contribu�on rates. Annual Increases would be collared
at the following rates in the coming fiscal years:
- 2011-12: 3 Percent growth over prior year.
- 2012-13: 3.5 Percent growth over 2011-12.
- 2013-14 and Therea�er: 4.5 Percent over prior year.
- Change the asset smoothing period to 10 years for PSERS. The SERS asset smoothing period will remain at
five years.
Pension Reform Measures - Amendment A07493
The following is a summary of the amendment to HB 2497 to reflect reform measures being proposed to the state’s
pension systems (SERS and PSERS). Changes will only impact “new hires” and will not effect the benefits of current
SERS and PSERS members.
REFORM MEASURES
- Rescind Act 9 (2001): Benefits provided to employees under Act 9 would be rescinded for all new members
beginning January 1, 2011 for SERS and July 1, 2011 for PSERS. Effec�ve date for new legislators would be
December 1, 2010. None of the changes would apply to the Judicial Branch.
SERS Members (Class A-3)
- Accrual Rate (Mul�plier) for each year of service will be 2 Percent of final average salary. This rate
will apply to both legislators and state employees. The current rate for legislators is 3 Percent; for state
employees the rate is 2.5 Percent.
- The employee contribu�on rate will remain at 6.25 Percent for state employees. The rate for new
legislators will drop from 7.5 Percent to 6.25 Percent.
- These new members of SERS have a 45-day period where they may opt into a new Class A-4, which would
provide an accrual rate of 2.5 Percent with an employee contribu�on rate of 9.3 Percent.
Con�nued
Budget Update: June 14, 2010
Pension Reform Measures - Amendment A07493
SERS Members (Class A-3)
- Ves�ng periods will increase from 5 to 10 years for all new SERS members.
- Re�rement age increases by 5 years from the current re�rement age for all new members.
- No Op�on 4 (lump sum payout) will be permi�ed for new members upon re�rement.
PSERS Members (Class T-E)
- Accrual Rate (Mul�plier) for each year of service will be 2 Percent of final average salary. This rate
will apply to public school employees. The current rate for this group is 2.5 Percent.
- The employee contribu�on rate will remain at 7.5 Percent.
- These new members of PSERS have a 45-day period where they may opt into a new Class T-F, which would
provide an accrual rate of 2.5 Percent with an employee contribu�on rate of 10.3 Percent.
- Ves�ng periods will increase from 5 to 10 years for all new PSERS members.
- Re�rement age increases to 65 with 3 years of service. The current provisions allow re�rement at age 62 with
1 year of service. Keeps re�rement ages consistent with SERS.
- No Op�on 4 (lump sum payout) will be permi�ed for new members upon re�rement.
- House Bill 2497 calls for an employer contribu�on rate of 5.64 Percent for PSERS. The actuarial rate cer�fied by
PSERS is marked at 8.22 Percent. This amendment would includes a provision that provides a window for the
employer contribu�on rates, no�ng that they cannot be less than 5.64 Percent, but also no more than 8.22 Percent.
The exact rate will be subject to the amount approved in the final state budget (General Appropria�ons Bill) for
Fiscal Year 2010-11.
- Note: Rate collars for the following fiscal years will not be effected by this amendment.
REFORM MEASURES
The following points are applicable to both SERS and PSERS in regards to the reform measures addressed on the
previous page:
- The opt-in Class A-4 (SERS) and Class T-F (PSERS) is viewed as being revenue neutral and would come at no
addi�onal cost to the systems. The increased employee contribu�on for each class would cover addi�onal
expenses.
- Current employees in both systems are restricted from the new opt-in classes.
- Employees who have previously made re�rement contribu�ons under one of the two systems and le�, only
to later return, will not be effected by the new provisions. The excep�on to this rule would be for those
employees who le� one system to join the other a�er the effec�ve dates. Those who would fall under this
rule would be subject to the changes of the new system they join.
- The ves�ng period for disability benefits for PSERS and SERS members will remain at 5 years. State troopers
and enforcement officers would be eligible for disability benefits as soon as they begin their �me of service.
- New employees subjected to the changes in this amendment would be eligible to withdraw their employee
contribu�ons plus 4 Percent statutory interest if they terminate their service prior to becoming vested.