PSRS Contribution Rate Set at 14% for 2010-2011 School Year
Effective July 1, 2010, changes will apply to PSRS regulations governing termination of covered employment and working after retirement.
Based on information and recommendations provided by an annual actuarial valuation of the Systems, the PSRS/PEERS Board of Trustees voted to increase each side of the required employer and employee contribution rate from 13.5% to 14.0% for the 2010-2011 school year. This change is effective July 1, 2010.
Each year, the Board of Trustees is required by law to set the contribution rate paid by members and school districts during the next fiscal year. As fiduciaries of the PSRS/PEERS trust fund, the Board is legally required to establish a contribution rate that will adequately fund the benefit promises made to members.
Employee and employer contributions have increased for the last several years, as the System works toward a 100% pre-funded status. As of June 30, 2009, PSRS was almost 80% prefunded. In other words, the System had approximately 80 cents of each dollar of future benefit promises made to Missouri’s educators – a very healthy position.
The largest factor behind rising contribution rates is the System’s unfunded actuarial accrued liability (UAAL). UAAL essentially means the System has more in liabilities than assets to cover those long-term liabilities. The UAAL is primarily a result of the current market decline, the challenging investment markets of the early 2000’s, legislative benefit increases in the mid- to late-1990’s affecting both active and retired members, and current contribution rates that are below those needed to adequately fund the System.
Since the U.S. stock market began declining in October 2007, the decline has rivaled a similar period – the Great Depression. It has truly been a worldwide economic slowdown with few places to hide.
PSRS, utilizing a professionally managed investment program and a well-diversified portfolio, has outperformed most markets and the majority of similar institutional investors, but has still experienced a substantial decline in asset values over this difficult period. This decline does not impact the System’s ability to provide the benefits promised, but it does affect the funded status of the plan and future required contribution rates.
“The Board and staff have worked diligently to structure an investment program that will provide a competitive rate of return at the lowest possible cost and risk,” said PSRS/PEERS Executive Director, Steve Yoakum. “But future contribution rate increases will depend on how much, if any, investment returns can be generated above the System’s actuarially assumed return of 8%.”
The actuarial valuation, which might be called the System’s annual fiscal check-up, assesses the solvency of the Retirement System and determines the level of employer and employee contributions required to maintain or improve the solvency of the plan.
The June 30, 2009 PSRS actuarial valuation done by PricewaterhouseCoopers (PwC) showed a UAAL of $7.2 billion and a required contribution rate of 15% (matched by the employer) to fund the PSRS benefits currently in place for PSRS members. While the actuarially required contribution rate is 15%, a 2003 law prohibits increasing the rate any higher than 1% total each year (as noted above, this, in effect, increases the UAAL each year). In order to address the UAAL, the Board must legally continue to reconsider the contribution rate on an annual basis to be certain the System remains adequately funded. While the Board strives to keep the contribution rates as low as possible, governmental accounting standards require that the unfunded actuarial accrued liability be funded over a period not to exceed 30 years.
“Consideration of a contribution rate increase is not something the Board of Trustees takes lightly,” Yoakum said, “but the Board and administration are deeply committed to maintaining the financial solvency and strength of our Retirement System.”