If you are in PERS 2, PSERS or LEOFF 2, you probably noticed a contribution rate change in your most recent paycheck. If you’re a member of TRS or SERS, you’ll notice a change in September.
Contribution rates can fluctuate over time. For example, the employee contribution rate for PERS 2 members is currently 4.15 percent but has ranged from 0.65 percent to 5.11 percent in the last 25 years. (You can view contribution rates on the actuary’s Web site at http://osa.leg.wa.gov.)
How are contribution rates set and why do they fluctuate? The state actuary performs a valuation of the retirement plans every other year, studying the actual experience of each and analyzing the effects of anticipated economic and demographic changes. They also factor in the cost of any changes the legislature makes to pension benefits. In the valuation, they determine how much money must be contributed annually to pay for the benefits members are expected to earn during their public service.
The actuary’s recommendations then go to the Pension Funding Council (PFC), which is responsible for evaluating and recommending any contribution rate changes to the Legislature. (There is one exception – rates for LEOFF Plan 2 are evaluated and adopted by the LEOFF Plan 2 Retirement Board.) Contribution amounts are then calculated as a percentage of your pay. In a few plans, those percentages are set in statute, but for most, the Legislature can adjust the rates as needed.
You and your employer make up roughly 25 percent of your retirement benefit. Roughly three-quarters of the money for your benefit comes from investments.
Your contributions (as well as your employer’s) go into the collective trust fund. The Washington State Investment Board then invests the contributions. The earnings on these investments provide almost 75 percent of the funding for your pension. Washington has one of the best rates of return in the country. The most recent is more than 20 percent.
For further information on public pension plan funding, visit the state actuary’s Web site.
July 2007/Legislative Edition