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In this blog I and multiple commenters have broached the subject of the suspect constitutionality of PSPRS' replacement of the old perma...

Wednesday, August 15, 2012

Why is everybody picking on us?

As one way to explain some of the escalating hostility to public employee pensions, see the following table, which shows the historical employer contribution rates to PSPRS:

Fiscal YearEmployer RateFiscal YearEmployer Rate

* Projected rates in fiscal year (FY) 10-11 annual report

The employer rate is the annual contribution as a percentage of member payroll that employers must make to PSPRS. The employee rate had been fixed for many years at 7.65%, but began to rise in FY 11-12 and will eventually top out at 11.65% in FY 15-16.  The employee contribution rate is currently 9.55%.

As can be seen from the table, the employer contribution rate has varied wildly since PSPRS was created.  The rate differs from year to year based on the funding ratio of PSPRS.  The funding ratio as of June 30, 2011 was 61.9%.  (A 100% funding ratio would mean that the pension is able to meet all its obligations now and into the future.)  When the funding ratio is low the employer contribution rate can be exected to go up, and it will decrease when PSPRS is fully funded.  However, the rate never dropped to zero, even when PSPRS' funding ratio was over 100%, as it was for a brief time during the early part of the last decade.

What angers and motivates critics of public employee pensions is the open-ended commitment taxpayers have to fund plans like PSPRS.  No matter how underfunded PSPRS gets, employees pay a fixed amount, but taxpayers have a virutally unlimited liability.  If rates of return are lower than expected or investment losses are incurred or payrolls decline, taxpayers will have to pay more and/or see government services decrease. 

The Board of Trustees Transmittal Letter from the PSPRS FY 10-11 Annual Report states, "With further erosion of the Plan's funding status expected to occur over the next several years, the forecast is that the employer contribution rates will continue to increase unless the Plan experiences far better than expected investment returns."  So do not expect the hostility to subside anytime soon.

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