HARRISBURG, PA — A key decision by the Pennsylvania Public School Employees’ Retirement System (PSERS) Board of Trustees is set to shape the financial landscape for educators and school districts alike. By adopting a resolution to certify the employer contribution rate (ECR) at 34.00% for the upcoming fiscal year, the board signals both a shift in strategy and a commitment to strengthening the system’s financial foundation. This slight rise from the current rate of 33.9% reflects the first increase in two years and emphasizes the delicate efforts to manage obligations while pursuing long-term stability.
Financial Health on the Rise
The modest increase in the ECR underscores noteworthy progress in PSERS’ fiscal health. For the first time in over a decade, the system’s funded ratio climbed, reaching 64.8%—a significant leap from 63.6% the previous year. According to the actuarial firm Gallagher, this improvement is largely attributed to the state and school employers making full payments for actuarially determined contributions in FY 2023-24. More than 80% of the new ECR will go toward addressing the system’s long-term pension debt, a reminder of PSERS’ ongoing focus on repairing damage caused by years of underfunding, unfunded benefit enhancements, and economic downturns.
“While projections have always indicated that contribution rates would need to rise, I am pleased to see such a modest increase and that it is lower than what our actuary had initially projected for FY 2026,” said Trustee Eric DiTullio, Chairman of the PSERS Finance and Actuarial Committee. “It is also helpful to remember that any such future increases are starting from a lower base rate, after the last two years of unexpected, though welcome, declines.”
On the financial front, the system reported substantial investment earnings totaling $5.7 billion in FY 2024, more than doubling the returns from the previous fiscal year. Additionally, higher-than-expected employer payroll growth contributed to a softer financial impact for employers, partially counteracting actuarial losses stemming from demographic shifts like salaries, mortality trends, and retirement changes.
Crunching the Numbers
Gallagher estimates total employer contributions for FY 2026 to hit $5.5 billion, marking a 4% increase over the current fiscal year. However, the burden remains mitigated by the Commonwealth, which directly reimburses school employers for at least half of this figure. Meanwhile, mandatory employee contributions, ranging from 5.25% to 10.30%, add another stabilizing layer to PSERS’ funding structure.
PSERS Chief Financial Officer Brian Lyman painted an optimistic picture, saying, “This past fiscal year, PSERS achieved its highest funded ratio in over a decade, nearly 65%, and its actuarial unfunded liability fell 6% since FY 2017. The ongoing budgetary commitment, higher employer payrolls, and positive net investment income are stabilizing the ECR and leading to the system’s overall financial improvement.”
A Win for Public Confidence
Adding to the encouraging news, PSERS received the prestigious Public Pension Standards Award for Funding and Administration for 2024 from the Public Pension Coordinating Council. This accolade underscores the system’s robust management and sustained progress in stabilizing its finances, which is no small feat for a fund managing roughly $75 billion in assets.
The system’s quarterly investment report further demonstrated its strong market performance, showing a one-year return of 15.76% and a 10-year return of 7.24%. These returns, combined with new board-approved investment commitments totaling $315 million across private credit and real estate, aim to drive long-term growth while diversifying the fund’s portfolio.
Implications for Pennsylvania’s Schools
While the slight uptick in the ECR signals progress, stakeholders should brace for ripple effects on school district budgets. Increased employer contributions often translate into tighter local budgets, but investing in PSERS’ stability pays forward, ensuring the pension security of over 500,000 active and retired school employees across the Commonwealth.
For educators planning their financial futures, this news might come with a sense of reassurance. The incremental rise in contributions reflects a system slowly digging out from prior years of missteps and market disruptions to achieve stronger footing.
What’s Ahead?
As PSERS continues to climb toward full funding, the balance between employer contributions, investment gains, and fiscal prudence remains critical. The next stages of this recovery will rely on continued policymaker commitment, stable market conditions, and ongoing accountability.
In a system that impacts so many across the state, this upward momentum sends a clear message—PSERS is moving forward. With a stronger foundation already taking shape, Pennsylvania’s educators and retirees can look toward a more secure future backed by tangible financial strides.
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