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Rating Agency Reports (Part 1)

Rating Agency Reports (Part 1). Fitch Ratings July 16, 2013.

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Rating Agency Reports (Part 1)

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  1. Rating Agency Reports (Part 1) Fitch Ratings July 16, 2013 “Pension Funding Demands: The funding levels of the Commonwealth’s pension systems, which have been historically adequate, have materially weakened, with annual contribution levels remaining well below actuarially required levels…..Maintenance of the ‘AA’ rating will require action over the next one to two years to make substantive progress towards addressing the state’s structurally unbalanced budget, restoring reserves, and addressing the rapid growth of fixed costs, including for pension funding……Unfunded pension obligations now represent the dominant share of the state’s long-term liabilities.” Source: Rep. Glenn Grell

  2. Rating Agency Reports (Part 2) Moody’s Standard and Poor’s April 2, 2013 “The negative outlook on Pennsylvania reflects our view that growing expenditure pressures, primarily pensions, coupled with a slow economic growth environment and limited available reserves, could place downward pressure on the rating…..Should the Commonwealth make significant strides in addressing its pension liabilitiesor experience substantial economic growth that would mitigate the impact of these liabilities on the budget, we could revise the outlook to stable.” March 29, 2013 “Due to recent investment losses and a seven-year history of low, statutory pension contribution levels, the Commonwealth’s unfunded pension liabilityhas increased substantially and funded ratios have declined below 70%.....What could make the rating go down: Growth in long term liabilities, increase in fixed cost pressures, or additional deferral of pension costs….” Source: Rep. Glenn Grell

  3. Balanced Approach – Three Buckets Plan

  4. Cash Balance Plan • For New Members Enrolled after June 30, 2015 7% 4/5% 4% • At retirement account turns into a monthly annuity like a defined benefit plan. Source: Rep. Glenn Grell

  5. General Borrowing • General Fund borrows $9 billion in two steps. • Step One: $2 billion to PSERS and $1 billion to SERS, amortized over 24 years. • Step Two: $4 billion to PSERS and $2 billion to SERS, amortized over 24 years. Source: Rep. Glenn Grell

  6. Current Member Modifications • Lump Sum formula – “actuarially neutral”

  7. Current Member Modifications • Final Average Salary Calculation • Based on 5 highest years instead of 3 highest years. • Reduces final year “spiking.”

  8. "T -r-

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