What Harrisburg State Workers Should Know About SERS, PSERS, and Long-Term Care

What Harrisburg State Workers Should Know About SERS, PSERS, and Long-Term Care

By Christian Joseph Marrazzo, Life and Health Insurance Agent at PAC Financial, Harrisburg, PA. August 2026.

Key takeaways:

• A pension is income, not care coverage. Medicare pays zero for ongoing custodial long-term care, retiree health benefits generally do not cover it either, and Harrisburg-area care costs can exceed even a strong pension check.
• The survivor option decision, taking a reduced pension so a spouse keeps income, is one of the biggest irrevocable choices a state worker ever makes, and it deserves analysis before the election, not regret after.
• Pension maximization, taking the higher single-life payout and funding permanent life insurance for the spouse, can work, and it can fail; it depends on health, discipline, and honest math run both ways.
• Section 1035 exchanges allow old life policies and certain annuities to be repositioned tax-free into modern coverage with long-term care benefits, one of the most useful and least known tools in a retiree's kit.

PAC Financial is a third-generation, family-owned independent financial advisory and insurance firm at 5291 Devonshire Road in Harrisburg, Pennsylvania, founded in 1972. Stephen A. Marrazzo built his early practice serving Pennsylvania school employees, and public workers have sat at our table ever since. Questions about the care gap in your retirement? Call (717) 564-6400.

Harrisburg is a government town, and this firm has spent three generations sitting with the people who run it: Commonwealth employees with SERS, teachers and school staff with PSERS, and, increasingly, the nurses and staff of the region's big health systems. Which means we have watched the same quiet mistake repeat for decades: careful people who did everything right, maxed the service years, timed the retirement, chose the health plan, while assuming that somewhere in that stack of benefits, long-term care was covered. It is not. Here is the gap, in plain English, and the tools that close it, including two that state workers almost never hear about until it is late.

Does Medicare or your retiree health plan cover long-term care?

No, and this is the myth that launches every hard story. Medicare pays zero for ongoing custodial care, the help with bathing, dressing, and daily living that most long-term care actually is; its skilled nursing benefit caps at 100 days after a qualifying three-day inpatient stay, and our Medicare guide walks that fine print. Retiree health benefits for Commonwealth and school retirees are medical insurance, and medical insurance is not custodial care coverage; the plan documents are the final word, and reading them for this question is a ten-minute exercise that reshapes a retirement plan. The regional backdrop sharpens it: with hospital systems under budget pressure, post-acute recovery keeps shifting toward home, and home care in the 717 runs about $6,101 a month at 44 hours a week, private pay, per CareScout 2025 data.

Is a pension enough to cover a care event?

Run the honest arithmetic. A pension is a magnificent thing, guaranteed monthly income for life, and it is exactly that: income. A Harrisburg-area private nursing room at $15,056 a month outruns most pension checks by itself, before the healthy spouse's household bills, and the shortfall drains the savings the couple meant to live on and leave behind. Worse, the pension's own design can concentrate the pain: if the retiree who needs care is the one whose life the pension is measured on, the couple pays for care out of savings while the pension survives, but if the pension holder passes after a long care event drained the accounts, a survivor option decision made decades earlier determines whether the widow or widower has income at all. Which brings us to the crossroads every state worker stands at exactly once.

The survivor option crossroads, and what pension maximization really is

At retirement, SERS and PSERS members choose between the maximum single-life payout and reduced options that continue income to a survivor, and the reduction is often meaningful, commonly cited in the range of 20 to 30 percent depending on ages and option, for the rest of your life. The election is irrevocable. Pension maximization is the strategy built on that fork: elect the maximum single-life payout, and use part of the monthly difference to fund a permanent life insurance policy on the retiree, sized so the death benefit could replace the pension income for the surviving spouse. Modern versions add a second layer: a policy with a long-term care rider creates what amounts to a double safety net, benefits that can accelerate tax-free for care if care comes, and a death benefit for the spouse if it never does, with life insurance proceeds to a named beneficiary generally exempt from Pennsylvania inheritance tax.

Now the paragraph the strategy's salesmen skip, and the reason to hear it from a family firm instead. In PAC Financial's opinion, pension max works when the retiree is healthy enough to be underwritten at reasonable rates, when the policy is genuinely guaranteed and funded every year for life, and when the math is run side by side, after taxes, against simply taking the survivor option. It fails, and fails on the spouse, when a policy lapses in year eighteen, when premiums that looked easy at 60 feel heavy at 80, or when optimistic illustrations meet real life. The survivor option is the benchmark, not the enemy: for many couples it is the right answer, and you will hear that from us when it is. This decision deserves both desks at our firm, the advisors on the pension math and mine on the insurance architecture, before the election is signed, because before is the only time it can be designed.

The tool almost nobody mentions: the Section 1035 exchange

Here is the quiet one. Many retirees own an old life insurance policy from decades ago, or an annuity bought in a different chapter, doing little. Section 1035 of the tax code allows those contracts to be exchanged, tax-free, into new ones, and since the Pension Protection Act, that includes exchanges into hybrid life and annuity contracts with long-term care benefits. Translated: the dusty policy in the drawer can often be repositioned into coverage that would actually pay for care, without triggering income tax on decades of gains. The cautions are real, surrender charges on the old contract, new underwriting, and the occasional old policy whose guarantees are too good to give up, which is why the first step is never the exchange; it is the review. Bring the policy, and we read it before anyone moves anything.

What might a SERS or PSERS member consider, and when?

Three moves, timed. Five or more years before retirement: have the care-gap conversation while underwriting is friendliest, and inventory every old policy and annuity for 1035 potential. The year of the election: run the survivor option versus pension max analysis both ways, on paper, with the honest failure cases included, and make the irrevocable choice with eyes open. Already retired: the gap conversation is still worth having, hybrid designs and repositioning existing assets remain on the table, and the asset protection playbook still applies. If you are separating from service or juggling old 403(b) and 457 accounts alongside the pension, our guide for education and public employees covers that map, and one protective rule from it bears repeating: your pension itself is a benefit to guard, never a thing to convert because a salesperson was in a hurry.

This is the firm for this conversation for a plain reason: my father Steve Marrazzo built his early practice serving Pennsylvania school employees, Steve & Tucker Nicholas handle the rollover and investment side, and my desk reads the policies. Bring two things to one meeting: your latest pension statement with the option estimates, and any life insurance or annuity contract you already own. We will put the whole picture on one page, in plain English, including telling you the survivor option wins when it wins. The first conversation costs nothing and carries no obligation. Call (717) 564-6400.

Talk to the Harrisburg firm that grew up with public workers

Christian Joseph Marrazzo, Life and Health Insurance Agent
(717) 564-6400 | LinkedIn

PAC Financial | 5291 Devonshire Road, Harrisburg, PA 17112 | www.pacfinancialfirst.com | Meet the whole team

About the author

Christian Joseph Marrazzo is a Life and Health Insurance Agent at PAC Financial in Harrisburg, Pennsylvania, and the third generation of the family firm founded in 1972. He leads the firm's long-term care planning work, comparing coverage across multiple highly rated carriers for Central Pennsylvania families, and works alongside the firm's Private Wealth Advisors on the pension, rollover, and estate planning sides of the same conversation. Connect with him on LinkedIn.

Sources

• Medicare.gov, skilled nursing and long-term care coverage rules
• SERS (sers.pa.gov) and PSERS (pa.gov/psers) member option resources
• IRC Section 1035; Pension Protection Act provisions on long-term care exchanges
• Pennsylvania Department of Revenue, inheritance tax treatment of life insurance proceeds
• CareScout, 2025 Cost of Care, Harrisburg area, PA

This material is for informational and educational purposes only and should not be construed as specific insurance, investment, tax, or legal advice or a recommendation. Pension benefits and survivor options are governed by SERS and PSERS plan terms; elections are generally irrevocable and should be reviewed directly with the plan and your advisors before acting, and retiree health benefit coverage is governed by plan documents. Pension maximization strategies involve significant risks, including policy lapse, premium sustainability, insurability, and tax considerations, and are not appropriate for everyone; electing a survivor option is often the appropriate choice. Section 1035 exchanges are subject to eligibility rules, possible surrender charges, new underwriting, and loss of existing contract guarantees; exchange decisions should follow a full review of the existing contract. Reduction percentages cited are general ranges; actual figures depend on plan, ages, and options. Life insurance and long-term care policies are medically underwritten and contain exclusions, limitations, reductions of benefits, and terms for keeping them in force; guarantees are based on the claims-paying ability of the issuing insurance company; tax treatment described is general, and Pennsylvania inheritance tax exemptions depend on structure and beneficiary designation; consult qualified tax and legal professionals. Insurance services offered through PAC Financial, which is not affiliated with Osaic Wealth, Inc. Securities and advisory services offered through Osaic Wealth, Inc., member FINRA/SIPC; PAC Financial and Osaic Wealth are separately owned. PAC Financial is not affiliated with SERS, PSERS, or any Commonwealth retirement system. This communication is intended for residents of Pennsylvania.