WASHINGTON -- Lower than assumed investment returns and insufficient employer contributions largely accounted for the unfunded liability spike in Pennsylvania’s pension plan for school employees, according to a University of Chicago report.

While the funded ratio of the Pennsylvania Public School Employees’ Retirement System declined from a high of 124% in 2000 to 61% by 2015, its unfunded liabilities rose by $46.8 billion, said the Center for Municipal Finance at the university’s Harris School of Public Policy.

“Over the course of our 15-year analysis, [PSERS’] assets grew by $8 billion, while its liabilities increased by nearly $55 billion,” said co-authors Amanda Kass and Jared Reynolds.

PSERS, one of Pennsylvania’s two major pension funds along with the State Employees’ Retirement System, originated in 1917 and provides retirement benefits to public school teachers and employees. State law sets contribution requirements, and employees, school districts, and the commonwealth all make contributions.

In 2015, the system was the 20th-largest public pension fund in the country, serving nearly 220,000 retirees and beneficiaries.

A message seeking comment was left with PSERS representatives.

Pennsylvania’s unfunded pension liability and chronic budget imbalance have triggered a series of general obligation downgrades over the past three years.

Democratic Gov. Tom Wolf and the Republican-controlled state legislature are again at odds over how to fund a $32.2 billion fiscal 2018 budget, which Wolf signed last week without a matching spending component.

S&P Wednesday put Pennsylvania on credit watch with negative implications, saying it would downgrade the commonwealth again if it does not match its spending plan with an appropriate revenue package.

S&P and Fitch Ratings assign AA-minus ratings to Pennsylvania’s general obligation bonds, while Moody’s Investors Service rates them Aa3.

Wolf last month signed a pension overhaul compromise bill that enables future state hires to choose between a traditional benefit plan and a hybrid that includes a 401(k)-style component. Despite the measure, said Moody’s, Pennsylvania’s pension costs will still rise in the short term.

The Harris report was its first in its series of state and local pension funding analyses.

“In 2000, the Pennsylvania Public School Employees’ Retirement System was a well-funded public pension system. In fact, PA-PSERS was so well-funded in 2000 that it had nearly $10 billion in excess assets,” Kass and Reynolds wrote. “Fast-forward to 2015 and the Pennsylvania Public School Employees’ Retirement System’s finances had deteriorated significantly.”

While PSERS had positive market returns for the majority of years in the Harris analysis, its overall investment performance was less than its investment rate assumption, and that underperformance led to increases in unfunded liabilities, the report said.

Pension-related legislation effectively deferred increasing employer contributions until recently.

“After years of contributions that did not cover the employer normal cost, state and school district budgets are now taking a hit,” said the report. “In 2015, the employer contribution exceeded 20% of payroll and it is expected to pass 30% in the coming years.”

PSERS, said the report, "offers a cautionary lesson to other plans around the country; contributions can only be delayed for so long.”

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