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 Status of Pension Contribution Rate Changes
LEOFF 2
On December 9, the LEOFF 2 Board approved a proposal we have mentioned previously - to provide for contribution rate increases for 2005-2009 on an annual basis rather than biennially. The following chart shows the adopted rates:
|
Contribution Rate Beginning Date |
LEOFF 2 Member Contribution Rate |
Employer Contribution Rate |
|
July 1, 2005 |
6.75% |
4.05% |
|
July 1, 2006 |
7.55% |
4.53% |
|
July 1, 2007 |
8.30% |
4.98% |
|
July 1, 2008 |
8.49% |
5.09% |
And beginning July 1, 2009, the board adopted a benefit floor, specifying that the rates would be no less than 90% of the normal cost calculated by the Actuary.
PERS
The PERS contribution rate situation is a bit more complicated.
As we’ve told you before, current rate-setting for the PERS system follows a two-year cycle. The pension contribution rates recommended by the State Actuary called for a PERS employer rate of 5.73% effective 7-1-05, increasing to 7.28% effective 7-1-07 and 8.44% as of 7-1-09.
On December 7, the Select Committee on Pension Policy (SCPP) voted to recommend a proposal to phase-in contribution rates over four years. Here are the rates as anticipated in the SCPP proposal.
|
Contribution Rate Period |
PERS 2 Member Contribution Rate |
Employer Contribution Rate |
|
7-1-05 through 6-30-06 |
1.75% |
2.5% |
|
7-1-06 through 6-30-07 |
3.25% |
5.5% |
|
7-1-07 through 6-30-08 |
4.75% |
8.25% |
|
7-1-08 through 6-30-09 |
5.80% |
9.96% |
|
7-1-09 through 6-30-11 (2 years) |
4.89% |
8.44% |
In his proposed budget for the 2005-07 biennium, Governor Locke has identified a variety of changes that would make pension cost increases more affordable. The governor’s proposal would:
- Change the actuarial method on which rates are based from the aggregate cost method to the projected unit credit method, another actuarially-accepted method that is used by other state and local governments and in the private sector;
- Phase-in rate increases over four years, as recommended by the SCCP (above);
- Continue to defer employer contributions to the unfunded liabilities of PERS 1 and TRS 1; and
- Change the gain-sharing benefit for PERS and TRS Plan 1 and 3 members from an automatic program to one that requires legislative approval when a gain-sharing event is triggered.
Although the exact impact on rates of the governor’s proposals is not yet known, you can expect they would reduce the contribution rates even further, given that the intent is to save the state money.
The Legislature will consider the SCPP recommendation as well as the Governor’s proposals beginning in January. It may be May or June before we know for sure what the July 1 PERS pension contribution rates will actually be. We’ll keep you posted.
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