RETIREMENT

    The Public School Employees Retirement System reduced its employer contribution rate for the 1998-99 school year from 8.76% to 6.33%. Approximately one-half of this rate is paid by the Commonwealth and one-half by the School Districts. The total savings to all employers will approximate $236 million. The Ridge Administration is using the $120 million it will save to fund a Basic Education Subsidy increase of the same amount.

    The four year history of the reduction in employer contribution rates and funded ratio is as follows:

YEAR	RATE	FUNDED RATIO
1995-96	11.72%	86.6%
1996-97	10.60%	89.7%
1997-98	8.76%	95.4%
1998-99	6.04%	105.0%

    Similar reductions in the contribution rate and increase in the funded ratio exist at the State Employees Retirement System. The Ridge Administration has had the benefit of enormous savings in its General Government Appropriations and the School Retirement Appropriation primarily due to investment returns of the retirement funds. Those returns are in turn primarily due to the huge increases in the U.S. Stock Market in the past decade, but primarily in the past three years. Thus through no effort on the part of the Ridge Administration, its school retirement obligation is $195 million less than it was three years ago, even though teacher salaries have increased every year during that period.

    The full funding status of the retirement funds raises a number of issues that have been or will be resolved. The General Assembly has already provided for a 30 and out early retirement benefit for each of the systems. State employees have a window which opened at enactment and will close June 30, 1999. The school employees have two limited windows: (1) from enactment until June 30, 1998 and (2) from April 1, 1999 until June 30, 1999. It appears that the Administration is very serious about not extending these windows when they expire.

Other retirement issues that will be considered in a second retirement bill are:

• Reduction of employee rates, particularly in the School Retirement System where employees pay 6.25% if hired after 1983. This appears to be unlikely.

• Adoption of a COLA for retirees, including the possibility of legislating a permanent COLA mechanism. A COLA will be included in the new retirement bill. The Conference Report adopts the Governor=s request of $17 million to support the first-year cost of the state annuitants= COLA.
• Adoption of a AMellow@ window. This appears to be extremely unlikely.