Data assembled by Richard Dreyfuss, Independent Consultant
Presented by Eric Epstein on May 9, 2016
PSERS estimates its asset value using a 10 year rolling average which is allowed under Act 120.
The actuarial standard for asset valuation is fiver years. This is standard operating procedure, and simply a sound financial practice.
The calculation below used market valuations, not the PSERS valuation method.
As of June 30,2015 the accrued liability was $94.6974B. The market value of assets was $51.7062B. Therefore, the unfunded liability was $42.9912B. Adding 10 months interest at 7.5% per annum to May 1, 2016 results in a figure of $45.6618B.
As of December 21, 2015 the accrued liability was $46.3289B. The market value of assets was $26.0503B. Therefore, the unfunded liability was $20.2786B. Adding 4 months interest at 7.5% per annum to May 1, 2016 results in a figure of $20.7734B.
Therefore the May 2, 2016 total is $45.6709B + $20.7775B or $66.4484B. From this total, the interest cost per second is $158.03.
Please note that the PSERS employer rate for FY 2016-17 is 30.03%. This is a collared rate. This is computed using a 10 year actuarial value of assets. As stated previously, actuarial standards indicate five years should be the maximum averaging duration.
If we were to pass HB 900 in accordance with standards proposed by the Blue Ribbon Society of Actuaries, the PSERS employer rate for FY 2016-17 would be approximately 35%.
HB 900 is the only vehicle which actually deals with the difficult issue of managing down the unfunded liability.
In round numbers, the PSERS actuarial value of assets is about $5B higher than the market value of assets, the corresponding difference for SERS is about $1B. This means the unfunded liability we are using for PSERS and SERS combined is about $6B higher than the figures often discussed in the Capitol.
Should anyone in the Capitol not concur with these figures; please ask them for a written explanation. Of note, both the Government Accounting Standard Board and Moody’s develop their respective figures based upon the market value of assets.
Pennsylvania’s pension funding standards are determined by state statute which fully explains why underfunding has been a matter of bipartisan agreement for over 10 years.
We continue to hear rhetoric of “pension reform”, which will likely contain proposals that still fail to address properly funding these pension systems anytime soon. Yet the rationale often heard is one of better managing near-term “cost drivers” which is code for pension costs.
If you continue to hear in two years all this will be better. My question is better than what?