UNIVERSITY PARK, Pa. — During a telephonic meeting today (March 19), the Penn State Board of Trustees approved a proposal for the University to increase its borrowing authorization by approximately $1.1 billion as part of an effort to lower the University’s obligation to the Pennsylvania State Employees’ Retirement System (SERS).
“Penn State is the only state-related institution that is required to offer employees the option to enroll in the state retirement plan,” said David Gray, Penn State senior vice president of finance and business/treasurer. “A third of our employees are enrolled in the state pension plan, and the University’s annual payment to SERS has grown by more than $110 million over the past decade.”
Gray said authorization for the additional borrowing authority would allow Penn State to incur debt to “pre-fund” the University’s annual payment to SERS. The Board of Trustees will also need to approve an agreement with SERS associated with this initiative, Gray noted.
The initiative would reduce Penn State’s pension costs by at least $37 million per year over the next 20 years in its obligation to the state system.
“The move is not dissimilar to refinancing the mortgage on a home to lower the interest rate and monthly payment,” Gray said. “The Board of Trustees and the administration have been exploring opportunities to control costs, and this is a novel way to achieve significant savings.”
He continued, “Lowering our obligation to SERS helps Penn State in its ongoing efforts to promote access and affordability.”
The state legislature recently passed an amendment to the State Employees’ Retirement Code that allows participating SERS employers to pre-fund all or a significant portion of their share of the system’s unfunded liabilities.
An agreement to pre-fund a portion of Penn State’s pension obligation must also be approved by the SERS.