In any crisis, it is hard to find a fully objective account of what happened. With PSERS, it is difficult, even with hindsight, to definitively determine the motivation behind key decisions, and to say who is ultimately responsible.
Nevertheless, there is agreement about much of what happened. So rather than wade into that controversy about who is responsible, I thought I would stick to the facts of what happened, and then provide links to the reports I found, some of which seem pretty objective, and some of which are less so.
Here are the major legislative actions, and the consequences to PSERS:
My take on this: Most of the damage was done in 2001. PSERS was over funded by 20%+ at the time. Our elected leaders acted as if this surplus was permanent. Unable to foresee that the stock market gains of the late 1990s were abnormal, and that fund returns would ‘revert to the mean’, the Senate and House instead spent away that surplus by passing Act 9, with the support of Governor Ridge. The giveaways in Act 9, coupled with the huge stock market correction of 2002, put PSERS in a massive hole. Actions taken in the subsequent years only made matters worse (Act 38, Act 40, Act 46). (When you are in a hole, the first rule is to stop digging). After nine years of digging a deeper and deeper hole, the legislature finally passed Act 120 in November 2010. Act 120 plugged the biggest drains on the fund and set the course for a long, albeit painful recovery. The current system still needs fixes and/or reforms, but at least the problem is no longer getting worse.
So three things happened:
- Act 9 gave away additional benefits without putting in place funding for them
- Act 38, 40, and 46 cut contributions from employers and the state
- Stock market declines dropped the value of assets in the fund
How do we connect these three actions to the $32.6B unfunded liability in PSERS today? The administrators of PSERS have done that for us in their most recent annual report. They divide it up this way:
- $14.0B – Due to Employer Funding Deferrals
- $9.0B – Due to Investment under-performance
- $8.9B – Due to Unfunded Benefit Enhancements
- $0.8B – Due to divergence between experience and actuarial assumptions (demographics, salaries, etc)
When thinking about solutions, which I will cover in a future post, it will be useful to keep this causality mind.
Here are other perspectives on this crisis (views expressed are not my own)
Pennsylvania State Education Association (Teachers Union): PSEA – What Happened
Pennsylvania Association of School Retirees : Fix It
Pittsburgh Public Radio, WESA FM: PA funding crisis
Central Penn Business Journal: History of PSERS
My previous posts on PSERS: