Quick facts about pensions

Here’s some help with those terms and ideas you hear and want to understand better.

In reporting our pension series, we came across some pretty wonkish terms. Here’s a shortcut to understanding those terms.

Terms

Defined benefitA defined benefit plan is one that guarantees a certain payout upon retirement.

Defined contributionA defined contribution plan is one that guarantees a specific contribution from the employee and/or employer, but not a specific payout. Defined contribution puts the risk of market performance on the retiree.

Municipal pensionsMunicipal pension plans serve local workers, such as police officers, firefighters, sanitation workers and office workers. Management of the pension plans can be local or by an umbrella group (see PRMS, PERC). Many municipalities have separate plans for uniformed and non-uniformed employees.

The state sets the rules on municipal pensions, and those rules differ by population size. The state also provides some aid to some municipalities to help pay pension costs.

Pennsylvania State Association of Boroughs—Municipal Retirement TrustMRT provides pension management services to some municipal entities in Pennsylvania, including boroughs, townships of the 1st and 2nd class, cities, authorities and  Council of Government (COGS).

Pennsylvania Municipal Retirement System (PMRS)The PMRS administers over 900 retirement plans for Pennsylvania municipalities with a fund of $2 billion. Municipalities join voluntarily. The precursor to PMRS was the Municipal Employees Retirement System which was established by the General Assembly in 1943.

Pensioner A pensioner is, literally, a person who receives a pension. But in some cultures it’s used as a substitute for “senior” or “old person.” A recent article in the online version of the British tabloid The Mirror, for instance, had this headline: “Pensioner eaten by wolf just 50 metres from her home.” The unfortunate fate of the woman has little to do with her status as someone who receives a pension, yet that is how she’s identified.

Public Employee Retirement Commission (PERC)PERC was established in 1981 to review all proposed legislation applicable to public employee pension systems and to monitor and measure  the health of  pension plans.

Public School Employees’ Retirement System (PSERS)PSERS provides pension plan management for about 600,000 public school employees in Pennsylvania. Members come from about 500 school districts plus about 300 other educational institutions. PSERS was enacted in 1917.  The system was robust until 2001 but has been seriously underfunded since then. State leaders are struggling to agree on a solution.

SpikingSpiking refers to when a municipal worker puts in a lot of overtime at the end of his/her career in order to get more money in retirement. Pension benefits are typically based on a person’s salary at the end of his or her career. Working more overtime increases that salary and means higher retirement payouts. Not all cities allow spiking.

State Employees’ Retirement System (SERS)SERS provides pensions for about 230,000 state employees who work for a wide variety of agencies and institutions, including state departments, community colleges, prisons, the legislature, veterans organizations and planning agencies. In 2014, SERS paid out $3.0 billion in benefits. The system was robust until 2001, but has been seriously underfunded since then. State leaders are struggling to agree on a solution.

Explainers

Pennsylvania’s pension crisis:

How can Pennsylvania cities turn around their pension systems?
Are Pennsylvania’s cities facing a pension crisis?
How did pension systems in Pennsylvania’s cities get in such bad shape?

How would pensioners be treated in a municipal bankruptcy?

How does state aid for local pensions work, exactly?

Proposed legislative study

Proposed solution: a statewide system

Research Organizations

Boston College’s Center for Retirement Research

National Association of State Retirement Administrators

Pension Research Council at Wharton, University of Pennsylvania

Links to media series on pensions

Keystone Research Group on Pennsylvania’s pensions

Times Tribune series on Scranton’s pensions

Watchdog.org stories on pension issues