Setting contribution rates
Process of how contribution rates are established.
Contribution rates are established by a process mandated in "Actuarial Funding of the State Retirement Systems", RCW 41.45. In a few plans, rates are a specific percent of salary prescribed in statute. But in the majority of plans, rates are the product of a funding formula.
The following summary describes the funding process. Any part of the funding laws may be modified either temporarily, or permanently at the discretion of the Legislature.
Contribution rates are expressed as a percentage of members' salaries.
How contribution rates are established
Step 1. Summer of even-numbered years
An actuarial valuation is performed by OSA on the most recent data available. The valuation identifies the contribution rates that must be collected annually to pay for the benefits members are expected to earn during their public service.
The manner in which the valuation is performed is subject to statutory requirements and actuarial standards of practice. OSA calculates and certifies contribution rates based on the funding policies, methods, and assumptions set in current law.
The intent of public pension funding is to provide a dependable and systematic process for financing the provided benefits. The six goals of this process are contained in RCW 41.45.010.
Rates developed by the valuations are referred to as valuation rates or basic rates.
Step 2. July of even-numbered years
The valuation rates developed by OSA for all Plans except LEOFF 2 are presented to the Pension Funding Council (PFC). It is the PFC's responsibility to officially adopt any changes to contribution rates. The PFC also solicits an independent audit to verify the OSA results. LEOFF 2 rates are adopted by the LEOFF 2 Retirement Board.
Valuation rates routinely become effective at the beginning of odd-numbered fiscal years and are scheduled to remain in effect for two years.
For the Teachers' (TRS) and School Employees' (SERS) systems, the fiscal year begins September 1. For all other systems, the fiscal year begins July 1.
Step 3. Beginning in January each year
The Legislature has the power to enact benefit changes when it convenes each year. Any of these changes may alter the funding status of the Plans. Current law requires any additional costs be calculated and contribution rates adjusted accordingly.
OSA calculates the cost of benefit changes and an adjustment is made via a temporary supplemental rate increase. At the beginning of the next rate-setting cycle the cost of any benefit changes is included in the valuation study.
Supplemental rates are charged in addition to the valuation rates and fund the cost of any benefit enhancements until the next rate-setting cycle.
Step 4. September of each year
Supplemental rates typically become effective September 1. At the discretion of the Legislature, this date may be changed. In some years, rates may change more than once as a result of separate effective dates for separate legislation.
Summaries of the statutory basis for contribution rates
|
Plan |
Employee |
Employer / State |
|
PERS 1 and |
Set in statute at 6% of salary. |
Balance of cost of benefits, equal to payment to amortize PERS 1 and TRS 1 unfunded liabilities over a ten-year rolling period, plus estimated annual cost of Plan 2/3 benefits. |
|
LEOFF 1 |
Set in statute at 6% of salary. No contribution required when plan is fully funded. |
Employer rate set in statute at 6%. No contribution required when plan is fully funded. State pays balance of cost of benefits. |
|
WSPRS 1 |
50% of the annual cost of projected benefits as determined by valuation, but no more than 7% of salary, plus 50% of supplemental rates in effect after July 1, 2007. |
Balance of the cost of benefits. |
|
PERS 2 |
50% of the annual cost of projected PERS 2 benefits as determined by valuation, excluding PERS 3 gain-sharing costs. |
Balance of the cost of benefits plus additional payments to amortize PERS 1 unfunded liabilities over a ten-year rolling period. |
|
SERS 2 |
50% of the annual cost of projected SERS 2 benefits as determined by valuation, excluding SERS 3 gain-sharing costs. |
Balance of the cost of benefits plus additional payments to amortize PERS 1 unfunded liabilities over a ten-year rolling period. |
|
PSERS 2 |
50% of the annual cost of projected PSERS 2 benefits as determined by valuation. |
Balance of the cost of benefits plus additional payments to amortize PERS 1 unfunded liabilities over a ten-year rolling period. |
|
TRS 2 |
50% of the annual cost of projected TRS 2 benefits as determined by valuation, excluding TRS 3 gain-sharing costs. The member rate is capped at 8.64 percent as of 2012, plus 50% of the cost of all future benefit improvements. |
Balance of the cost of benefits plus additional payments to amortize TRS 1 unfunded liabilities over a ten-year rolling period. |
|
LEOFF 2 |
50% of the annual cost of projected LEOFF 2 benefits as determined by valuation. |
Employer rate set in statute at 30% of annual benefit costs as determined by valuation. State rate set in statute at 20% of annual benefit costs as determined by valuation. |
|
WSPRS 2 |
Same as WSPRS 1. |
Same as WSPRS 1. |
|
PERS 3 TRS 3 SERS 3 |
Employee does not contribute to the defined benefit plan, but contributes to the defined contribution benefit. |
Same as Plan 2 employer rates |