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At the conclusion of a 5-month review with the independent actuary regarding the funding of the System, the Retirement Board adopted a modification to the funding policy designed to moderate short-term swings in contribution rates. Faced with increasing contribution rate volatility, the Retirement Board acted to enhance predictability of the contribution rates for members and employers. The change in the policy affects amortization of the System's unfunded liability, moving to a method which provides the current and future generations of members and employers with the opportunity to fund new losses over thirty year periods. The modification to the funding policy was put into place beginning with the 2004 valuation.
Full text of the adopted policy
- The Board shall work with the Legislature to maintain an adequate contribution rate to provide for funding the unfunded accrued liability of the System using a year-by-year closed amortization approach and the level percentage of payroll contribution method. Each amortization period will be set at 30-years beginning with the 2004 valuation.
- Benefit improvements may be considered when the actuarially determined employer pay contribution rate would drop by at least 1% and the employee/employer pay rate would drop by at least .5% from the statutory rate and remain sufficient to meet the requirements of this funding policy.
- Benefit improvement costs may equal up to one-quarter of the margin between the statutory rate and the actuarially determined contribution rate.
Policy support
Rate stabilization is key to long term financing of the System. It provides predictability to members in their take home pay and in the employer budgeting process (each shares equally in the cost of the System). Any event (loss or gain) in a single year, giving rise to sharp rate changes is managed, not simply reacted to. This provides a significant tool to the System to balance short-term swings in costs with the long term financing horizon that is the time horizon for PERS.
Your Retirement Board is dedicated to achieving full funding for the Retirement System. The amortization method will reduce the volatility in contribution rates and provides each generation of employees and employers contribution rate equity in the funding of the System. This actuarial methodology change does not affect the integrity or the financial security of PERS, but it gives the Board an additional tool to stabilize and moderate contribution rates.
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