Explanation of retirement costs
Approximately half of the State System's employees are enrolled in the Commonwealth's defined benefit retirement programs—the State Employees Retirement System (SERS) and Pennsylvania School Employees Retirement System (PSERS). The remaining half are enrolled in various Alternative Retirement Programs (ARP) that are based on a defined contribution.
The State System’s annual retirement contributions on behalf of its employees have increased by nearly 50 percent over the past three years and have more than doubled over the past five, rising from approximately $64.4 million in 2010-11 to $136.2 million in 2016-17. The significant increase is largely the result of increases in the required contribution rates to both SERS and PSERS, which are set by the Commonwealth.
In 2010-11, the contribution rate for SERS was 4.11 percent of eligible employees’ salaries; in 2013-14, it was 15.12 percent; in 2016-17, the rate was 29.95 percent. The rate will rise to 34.54 percent in 2018-19. The PSERS rates increased from 2.82 percent in 2010-11, to 8.47 percent in 2013-14 and to 15.02 percent in 2016-17. It will rise to 16.72 percent this year. The ARP contribution rate of 9.29 percent has not changed in more than 20 years.
While overall retirement costs have increased by 49 percent over the past three years, the total amount paid by the State System in employee salaries over that same time has increased by only 2 percent; and the cost for providing healthcare coverage to eligible employees, by 4 percent. The cost of utilities, meanwhile, has decreased by nearly 12 percent. The System now contributes the equivalent of $1,397 per student each year in retirement costs; and, unlike K-12 school districts, does not receive a separate appropriation to offset any portion of those costs.
The total estimated costs for retirement contributions, by plan, for FY2013-14 and FY2016-17 are as follows:
||$ 43.5 million
||$ 83.8 million