05.23.2017
Employer Contribution Rates Set to Rise

Last week, CalPERS issued Circular Letters informing school and state employers of their expected contribution rates for the 2017-18 fiscal year. These rates go into effect with the first payroll period that ends in July 2017.

School Employers

School employers will contribute 15.531% of compensation, an increase from the current 13.888%. Total contributions will rise from nearly $1.7 billion to $2 billion. As to employees, “Classic” members will continue to contribute 7% of their reportable compensation while contributions from “new members” subject to the Public Employees’ Pension Reform Act (PEPRA) will increase from 6% to 6.5%.

State Employers

As shown in the Circular Letter, contribution rates are more complicated for state employers. For one thing, there are five types of employees, each with a different contribution rate. For another, Government Code section 20683.2(d)[1] provides that the Legislature may increase state employer contribution rates by the amount saved as a result of employee contribution rate increases. The Legislature increased rates last year and is expected to do so again this year. These additional contribution rates range from .881% for a “State Industrial Member” to 1.647% for a “Peace Officer/Firefighter Member.”

State employer rates, which include the additional statutory contribution, are as follows:

  • State Miscellaneous Member: 28.423%
  • State Industrial Member: 20.408%
  • State Safety Member: 20.584%
  • California Highway Patrol Member: 54.104%
  • Peace Officer/Firefighter Member: 44.245%

This year, state employers contributed $5.4 billion to CalPERS. Next year, they will contribute $5.9 billion.

Explanation for the Increases

On April 18, the CalPERS Finance and Administration Committee explained the increased contribution rates were caused by amortization of losses, increased salaries, lowering of the assumed rate of return from 7.5% to 7.375%, and other factors.

Comment

Unfortunately, employer contribution rates are not expected to decrease any time soon, though the increase is less than the CalPERS Board predicted in February.

[1] The Circular Letter erroneously refers to subsection (c) rather than (d).

Categories: Public Pensions

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