House Republican Appropriaons Commiee

The Chairmans Report Rep. Bill Adolph

State Budget Update: June 14, 2010
House Bill 2497 proposes to make changes to the methodology to calculate the employer contribuon rates of the
states two pension systems -- the Public School Employees Rerement System (PSERS) and the State Employees
Rerement System (SERS). The bill would address the pending spike in the employer contribuon rates for the two
systems by incrementally increasing the rates to help lessen expenditures in the state budget and for school districts.

House Republicans have asserted that any pension-related legislaon must also contain necessary reforms to help
the state beer manage its future expenses. In turn, an amendment to House Bill 2497 has been draed (A07493)
that would cover several key reforms. This amendment was draed through biparsan eorts.

House Bill 2497

As introduced by Democrat Appropriaons Commiee Chairman Rep. Dwight Evans, this legislaon would make
the following changes to both SERS and PSERS:

- Re-amorze all unfunded liabilies over a 30-year period.

- Establish a nal contribuon rate for scal year 2010-11 at 5 Percent for SERS and 5.64 Percent for PSERS
(This includes the .64 Percent for premium assistance).

- Implement limits on the increases in the employer contribuon rates. Annual Increases would be collared
at the following rates in the coming scal years:
- 2011-12: 3 Percent growth over prior year.
- 2012-13: 3.5 Percent growth over 2011-12.
- 2013-14 and Thereaer: 4.5 Percent over prior year.

- Change the asset smoothing period to 10 years for PSERS. The SERS asset smoothing period will remain at
ve years.

Pension Reform Measures - Amendment A07493

The following is a summary of the amendment to HB 2497 to reect reform measures being proposed to the states
pension systems (SERS and PSERS). Changes will only impact new hires and will not eect the benets of current
SERS and PSERS members.

REFORM MEASURES

- Rescind Act 9 (2001): Benets provided to employees under Act 9 would be rescinded for all new members
beginning January 1, 2011 for SERS and July 1, 2011 for PSERS. Eecve date for new legislators would be
December 1, 2010. None of the changes would apply to the Judicial Branch.

SERS Members (Class A-3)

- Accrual Rate (Mulplier) for each year of service will be 2 Percent of nal average salary. This rate
will apply to both legislators and state employees. The current rate for legislators is 3 Percent; for state
employees the rate is 2.5 Percent.
- The employee contribuon rate will remain at 6.25 Percent for state employees. The rate for new
legislators will drop from 7.5 Percent to 6.25 Percent.
- These new members of SERS have a 45-day period where they may opt into a new Class A-4, which would
provide an accrual rate of 2.5 Percent with an employee contribuon rate of 9.3 Percent.
Connued
 Budget Update: June 14, 2010
Pension Reform Measures - Amendment A07493
SERS Members (Class A-3)

- Vesng periods will increase from 5 to 10 years for all new SERS members.

- Rerement age increases by 5 years from the current rerement age for all new members.

- No Opon 4 (lump sum payout) will be permied for new members upon rerement.

PSERS Members (Class T-E)

- Accrual Rate (Mulplier) for each year of service will be 2 Percent of nal average salary. This rate
will apply to public school employees. The current rate for this group is 2.5 Percent.
- The employee contribuon rate will remain at 7.5 Percent.
- These new members of PSERS have a 45-day period where they may opt into a new Class T-F, which would
provide an accrual rate of 2.5 Percent with an employee contribuon rate of 10.3 Percent.

- Vesng periods will increase from 5 to 10 years for all new PSERS members.

- Rerement age increases to 65 with 3 years of service. The current provisions allow rerement at age 62 with
1 year of service. Keeps rerement ages consistent with SERS.

- No Opon 4 (lump sum payout) will be permied for new members upon rerement.

- House Bill 2497 calls for an employer contribuon rate of 5.64 Percent for PSERS. The actuarial rate cered by
PSERS is marked at 8.22 Percent. This amendment would includes a provision that provides a window for the
employer contribuon rates, nong that they cannot be less than 5.64 Percent, but also no more than 8.22 Percent.
The exact rate will be subject to the amount approved in the nal state budget (General Appropriaons Bill) for
Fiscal Year 2010-11.
- Note: Rate collars for the following scal years will not be eected by this amendment.

REFORM MEASURES

The following points are applicable to both SERS and PSERS in regards to the reform measures addressed on the
previous page:

- The opt-in Class A-4 (SERS) and Class T-F (PSERS) is viewed as being revenue neutral and would come at no
addional cost to the systems. The increased employee contribuon for each class would cover addional
expenses.

- Current employees in both systems are restricted from the new opt-in classes.

- Employees who have previously made rerement contribuons under one of the two systems and le, only
to later return, will not be eected by the new provisions. The excepon to this rule would be for those
employees who le one system to join the other aer the eecve dates. Those who would fall under this
rule would be subject to the changes of the new system they join.

- The vesng period for disability benets for PSERS and SERS members will remain at 5 years. State troopers
and enforcement ocers would be eligible for disability benets as soon as they begin their me of service.

- New employees subjected to the changes in this amendment would be eligible to withdraw their employee
contribuons plus 4 Percent statutory interest if they terminate their service prior to becoming vested.