The CalPERS defined benefit pension plan is funded by employer-paid contributions, employee contributions, and the plan's investment earnings. Employer-paid contribution rates are adjusted each year in order to meet defined pension benefit obligations. In Fiscal Year 2016-17 the employer retirement rates for the Miscellaneous Tier 1 and Peace Officer/Firefighter increased by 1.578% and 2.938% respectively from fiscal year 2015-16 composite retirement rates. The 2016-17 employer-paid retirement adjustment is equivalent to an increase of $36.8 million. The state Department of Finance processes state agency retirement adjustments during the fiscal year. The following table provides a ten-year overview of CalPERS employer-paid retirement contribution rates and adjustments from 2007-08 through 2016-17:
12016-17 is the third year that the CSU is receiving partial state funding of employer-paid retirement adjustments based on 2013-14 frozen pensionable payroll data determined by the State Controller’s Office.
California Government Code Section 20814 requires the state to annually budget funding to support the employer-paid retirement contribution rates established by the actuary, and further requires that the legislature adopt the rates and authorize the appropriation in the Budget Act.
For reference regarding 2016-17 employer-paid retirement rates, see CSU Human Resources Administration, Technical Letter HR/Benefits 2016-05.
Employee Retirement Contributions
(for informational purposes only)
The Miscellaneous Tier 1 employee contribution rate established in July 1, 1976 remains in effect for employees that began state employment prior to 2013 (classic member). For employees with state employment dates on January 1, 2013 or later, the employee retirement contribution rate is determined by the Public Employees' Pension Reform Act of 2013 (PEPRA).
Government Code Section 20677(b)(1) provides that employee retirement contribution rates for classic state Miscellaneous Tier 1 members employed by the CSU who are in the federal system (Social Security) and began employment prior to 2013 shall be 5 percent of compensation in excess of a $513 offset per month. The new CalPERS Miscellaneous Tier 1 members hired in 2013 and beyond under PEPRA shall contribute half of the normal cost of CalPERS retirement benefits, which is currently 6.75 percent of compensation without the $513 per month offset. The majority of CSU employees (approximately 99 percent) with CalPERS retirement benefits fall within the Miscellaneous Tier 1 category.
The remaining one percent of CSU employees with CalPERS retirement benefits have designated Peace Officer/Firefighter (POFF) benefit levels. The POFF employee contribution rate for members that began employment prior to 2013 is 8 percent in excess of $238 offset. The retirement contribution rate for POFFs hired in 2013 and beyond under PEPRA shall contribute half of the normal cost of CalPERS retirement benefits, which is currently 11 percent of compensation without the $238 per month offset.
Stages of pension reform measures were implemented between 2010 and 2013, and have included changes in contribution percentages and retirement benefit formulas based on employment dates. The following CSU Systemwide Human Resources technical letters provide further details on pension reform measures:
Section 3.60 of the Budget Act of 2014 establishes parameters for the state funding of CSU General Fund employer-paid retirement costs. While the state’s obligation per Government Code Section 20814 to adjust retirement funding based on annual rates set by CalPERS is retained, the salary base used for application of the incremental rate changes is fixed going forward to the CSU actual 2013-14 pensionable payroll as determined by the state.