House Bill 27 Unanimously Passes the House and Senate

• Actuarial Approach.

• Cost of Living Adjustment (COLA).

• And Other Changes.

House Bill 27 makes modifications to the actuarial approach used by the Public School Employees’ Retirement System (PSERS). The modifications were made necessary by investment losses that forced employer contribution rates higher for PSERS. The actuarial changes are as follows:

1) House Bill 27 sets in statute a five-year smoothing method for asset valuation for PSERS. SERS is already using five-year smoothing and PSERS adopts SERS method for the realization of investment gains. This change will mitigate abrupt changes in the employer contribution rate from significant investment gains or losses (as has been evidenced with the initial 2002-03 PSERS employer contribution rate).

2) A minimum contribution rate of 1.0 percent including, in the case of PSERS, the premium assistance contribution rate (0.97 percent for 2002-03). The employer contribution rate for 2002-03 shall not be less than 1.15 percent.

3) Directs PSERS to re-certify the employer contribution rate for 2002-03 within 15 days of the effective date of the act. The re-certification will result in a rate of 1.15 percent for 2002-03. The original rate for 2002-03 was 5.64 percent.

The bill includes a two-part ad hoc COLA to annuitants of both PSERS and SERS.

• The COLA will be effective for four years after the last COLA was enacted.
• In order to be eligible for the COLA, an annuitant must have reached superannuation age or be disability annuitant.
• Constitutional prohibitions prevent survivor annuitants from receiving the COLA.
• COLA is to be funded over a 10-year level dollar basis.

Effective July 1, 2002, for annuitants who had an effective date of retirement prior to July 2, 1990. The COLA is based on providing annuitants with an increase of at least 50 percent of the rate of inflation since retirement. Older annuitants receive greater increases in order to maintain the adequacy of their retirement benefits. Amortization of the COLA cost begins July 1, 2003.

July 2, 1988 through July 1, 1990 8.0 percent

July 2, 1983 through July 1, 1988 10.0 percent

July 2, 1980 through July 1, 1983 15.0 percent

Prior to July 2, 1980 25.0 percent

Effective July 1, 2003, for annuitants who had an effective date of retirement prior to July 2, 2002. The COLA is based on providing annuitants with an increase of at least 50 percent of the rate of inflation since retirement. Amortization of the COLA cost begins July 1, 2004.

In order to receive this COLA, an annuitant’s credited service must not include either Class T-D, Class AA service or Class D-4 (Act 9 beneficiaries who elected higher multiplier).

Effective Date of Retirement Percentage Increase

July 2, 2001 through July 1, 2002 2.27 percent

July 2, 2000 through July 1, 2001 3.08 percent

July 2, 1999 through July 1, 2000 4.87 percent

July 2, 1998 through July 1, 1999 6.35 percent

July 2, 1994 through July 1, 1998 7.50 percent

July 2, 1990 through July 1, 1994 9.00 percent

Prior to July 2, 1990 0.00 percent

1) Permit former Department of Education employees who were transferred to the Department of Corrections by Act 15 of 1999 (teaching staff in state correctional institutions) to elect membership in SERS and convert school and non-school service with PSERS to SERS service in order to obtain Age 50 requirement credit. Provisions are retroactively effective to January 1, 2002. A post-retirement retirement adjustment is also provided for members affected by Act 15 of 1999 who retired.

2) Permits former employees of Shippensburg University who were transferred to the Juvenile Court Judges Commission on January 1, 2002, to continue to participate in an alternative retirement plan (TIAA-CREF) if they had participated in the alternative retirement plan while employed by Shippensburg University.

3) The bill also makes a number of technical and administrative changes to the PSERS and SERS codes.