State Employer Projected Contribution Rates
September 20, 2024
Circular Letter: 200-043-24
Topic: Actuarial
To: State Employers, Agricultural Districts, and State Colleges and Universities
Purpose
The purpose of this Circular Letter (CL) is to provide updated projections of the employer contribution rates reflecting the 9.3% CalPERS preliminary investment return for fiscal year (FY) 2023-24 (without reduction for administrative expenses). This CL also projects contribution rates under different investment returns in future years, known as a “scenario test”.
Employer Contribution Rates
The state employer contribution rates for FY 2024-25 and the projected rates for the next five FYs can be found in the table in the Projected Contribution Rates Section. The actual state employer contribution rates will not be known until audited assets and demographic changes as of June 30, 2024 are measured as part of the next actuarial valuation. The actual FY 2025-26 state employer contribution rates will be presented to the CalPERS Board of Administration in April 2025 and will differ from the estimate shown here.
Projected Employer Contribution Rates
The table below shows the required and projected employer contribution rates for the current FY and the next five FYs. The projected results reflect an investment gain for FY 2023-24 based on preliminary investment return information released by the CalPERS Investment Office. Additionally, projected rates reflect the anticipated decrease in normal cost due to new hires entering the Public Employees’ Pension Reform Act (PEPRA) benefit tier.
The table below shows the required and projected employer contribution rates for the current FY and the next five FYs. The projected results reflect an investment gain for FY 2023-24 based on preliminary investment return information released by the CalPERS Investment Office. Additionally, projected rates reflect the anticipated decrease in normal cost due to new hires entering the Public Employees’ Pension Reform Act (PEPRA) benefit tier.
It is assumed that all actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the projection period. The projections below and in the attachment do not account for any potential future change to the discount rate stemming from the CalPERS Funding Risk Mitigation Policy. Under this policy, as amended in April 2024, a board review of the asset allocation and discount rate is triggered after a year when investment returns outperform the assumed rate by a specified margin, but any change in the discount rate is at the board’s discretion.
Projections, by their nature, are not a guarantee of future results. Future contribution requirements may differ, perhaps significantly, from those shown below. The actual long-term cost of the plans will depend on the actual benefits and expenses paid and the actual investment experience of the fund.
Rates do not include Budget Act Adjustments.
| Member Category | Actual | Projected | ||||
|---|---|---|---|---|---|---|
| 2024-25 | 2025-26 | 2026-27 | 2027-28 | 2028-29 | 2029-30 | |
| State Miscellaneous | 31.39% | 31.9% | 32.1% | 33.6% | 33.2% | 32.7% |
| State Industrial | 20.18% | 20.6% | 20.7% | 22.0% | 21.6% | 21.1% |
| State Safety | 22.03% | 22.4% | 22.5% | 23.9% | 23.4% | 22.9% |
| Peace Officers & Firefighters | 48.09% | 48.7% | 48.9% | 51.3% | 50.4% | 49.3% |
| California Highway Patrol | 69.89% | 70.9% | 68.7% | 71.2% | 69.9% | 71.0% |
For Actual Rates that include Budget Act Adjustments, refer to Circular Letter 200-033-24.
Under the CalPERS amortization policy, changes in the Unfunded Accrued Liability (UAL) due to investment gains or losses (actual return relative to assumed return for the year) are amortized using a five-year ramp up. This method attempts to mitigate employer cost volatility from year to year by phasing in the impact of investment experience over a five-year period. As a result of this methodology, dramatic changes in the required employer contributions in any one year are less likely. However, required contributions can change gradually and significantly over the next five years. In years with poor investment returns, the relatively small amortization payments during the ramp-up period could result in a funded ratio that is projected to decrease initially while the contribution impact of the investment loss is phased in. For more information, see the CalPERS Actuarial Amortization Policy (PDF).
Questions
If you have questions, call our CalPERS Customer Contact Center at 888 CalPERS (or 888-225-7377888-225-7377).
Scott Terando, Chief Actuary
Actuarial Office
Attachment: Future Investment Scenarios (PDF)