Pa. teachers to pay more in retirement contributions as pension fund backtracks on faulty investment data

Pennsylvania’s embattled teachers pension fund voted late Monday to increase the pension contributions for almost 100,000 state educators and other school employees.

This increase will occur starting July 1, 2021, after the board of Pennsylvania’s Public School Employees Retirement System voted 12-1 to undo its approval of erroneous pension investment returns last year, which could spark legal action from teachers forced to pay more to the system.

The vote will mean that 94,000 school employees hired after 2011 will see their pension contribution rate increase by half- or three-fourths of a percentage point until at least 2024. That’ll total $17 million in new contributions from those teachers in the next fiscal year.

That would average out to $180 extra dollars out of each teacher’s yearly pay, but the exact amount will depend on each teacher’s salary, which can vary widely between school districts.

Under pension reform bills passed over the past decade, the commonwealth set up a system under which if the pension’s investments miss certain market benchmarks, a select group of newer teachers are required to pay extra to the system to counteract the low returns. Otherwise, contribution rates for school districts increase. This system is known as “risk sharing.”

The pension’s board, a 15 member group of teachers, school officials, lawmakers and gubernatorial appointees, voted in late 2020 to certify a nine year performance rate that just squeaked by the needed benchmark to prevent a contribution increase by two tenths of a percentage points.

The pension system manages $64 billion in assets to pay for the current and future retirements of more than 600,000 school employees. 

But those approved numbers later turned out to be erroneous. The board is now conducting an internal investigation into the matter, and has released view details.

 This investigation is separate and distinct from a federal probe into the pension related to Harrisburg land deals, as reported by the Philadelphia Inquirer.

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Recertifying the pension’s returns five months later may also be legally dubious, according to one pension board member.

“I have intimate knowledge of the fact that this is something not anticipated when [risk-sharing] was put into law,” said state Sen. Pat Browne, R-Lehigh, who helped craft the recent reforms.

With the exception of Browne, the resolution passed without comment from the board, which had spent three-and-a-half hours in executive session before taking the vote.

Under the letter of state pension law, the certification vote PSERS’s board took in December should be final.

The board said in a joint statement released after the vote that it was “mindful of its duty to faithfully execute the relevant provisions statute,” but did not defend the decision further.

“The Board regrets the uncertainty and confusion caused by these errors. PSERS will begin work immediately to notify school employees and school employers around the Commonwealth,” the statement continued.

A spokesperson for the Pennsylvania State Education Association, which represents tens of thousands of school employees in mostly rural and suburban districts, said the union was disappointed in the board’s process, but believed the board had complied with state pension law.

Pennsylvania’s chapter of the American Federation of Teachers, which counts among its members Pittsburgh and Philadelphia’s educators, called the decision “infuriating” and threatened legal action in a statement Monday night.

“It’s an especially bold move for an organization under investigation by the FBI just as we are starting to emerge from a global pandemic during which teachers gained even more public trust,” union president Arthur Steinberg said in a statement. “Add to this a legislature that continues to woefully underfund and attack public education, and we have educators being squeezed on both ends.”

The board also voted Monday night to hire an outside investment firm to provide oversight to its investment decisions while it remains under investigation.

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