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 2019-20 the employer retirement rates for the Miscellaneous Tier 1 and Peace Officer/Firefighter increased by 1.679% and 3.474% respectively from fiscal year 2019-20 retirement rates. The 2019-20 employer-paid retirement adjustment is equivalent to an increase of $39.3 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 2010-11 through 2019-20:
Beginning with the 2014-15 fiscal year, a limit was placed on the state's obligation to adjust CSU retirement funding due to annual changes in CalPERS rates. The state's obligation to adjust funding continues (Government Code section 20814), as shown in the table above, but the salary base applied to the incremental change is set to the CSU 2013-14 pensionable payroll level as reported by the State Controller's Office. The $11.6 million included in the salary and benefits section of the budget request is the projected 2020-21 unfunded retirement cost above the funding anticipated for the yet to be determined 2020-21 state funded retirement adjustment.
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 2019-20 employer-paid retirement rates, see CSU Human Resources Administration, Technical Letter HR/Benefits 2019-08.
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 (new CalPERS member), 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 percent of compensation without the $513 offset.
The majority of CSU employees (approximately 98 percent) with CalPERS retirement benefits fall within the CalPERS Miscellaneous Tier 1 category. The remaining two percent of CSU employees with CalPERS retirement benefits have designated CalPERS Peace Officer/Firefighter benefit levels. The employee contribution rate for this group is subject to Government Code Section 20687, which provides that employee retirement contribution rates shall be half of the normal cost of CalPERS retirement benefits, which is currently 10.5 percent of compensation in excess of $238 per month. Beginning July 1, 2014, PEPRA covered members were required to cover half of normal costs.
Pension reform changes began in 2010 and continued to be expanded through 2013. Pension reform measures 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: