How contribution rates are determined
When you retire, the monthly benefit you receive will have been funded over time by your contributions, your employer’s contributions and investment returns.*
The goal is to fund the pension plans at 100 percent, which means the last dollar of assets would be expected to match the last dollar of benefits paid to the last member or beneficiary.
Each year the state actuary studies the financial condition of the plans to determine their overall health and status. Every five years, the actuary studies the experience of the plans. The actuary uses math, statistics and financial theory to analyze the probability of events that could affect the plans in the future (including inflation, salary increases, the rates of retirement and disability, and the expected life span of members) and develops assumptions about them.
The actuary uses those assumptions to make recommendations that include increasing or decreasing the contribution rates or leaving them at the existing level. Historically, contribution rates have fluctuated. For example, in 1977 the PERS Plan 2 member rate was 5.51 percent, but in 2000 it went as low as 1.54 percent. On average, the PERS 2 member rate has been about five percent.
The Pension Funding Council evaluates the actuary’s assumptions and recommendations and in turn makes a recommendation to the state Legislature (for all plans except LEOFF Plan 2). Earlier this year, the council voted to adopt the contribution rates recommended by the actuary. The Legislature will make the final determination on adopting any changes to the rates.
For LEOFF Plan 2, the actuary presents assumptions and recommendations to the LEOFF Plan 2 Board, which evaluates them and makes decisions on contribution rates.
If you would like more information on plan funding and contributions, visit the state actuary’s Web site.
*There are two exceptions. One is Plan 3, where your employer’s contributions fund the defined (guaranteed) benefit you receive and your contributions provide a defined contribution benefit. The second is LEOFF Plan 2, which also includes state contributions.