On March 14, 2012, our Blog Post examined CalPERS’ decision to lower the discount rate from 7.75 percent to 7.5 percent in its assumption when determining employer contribution rates. At a meeting of the CalPERS Board of Administration, staff were asked to study the possibility of phasing-in the increased employer contribution rates over a two year period.
Last week, the CalPERS Board approved a plan to phase – in the impact on employer contributions. Under the plan , employers will see about half of the projected rate increase in the first year and the rest of the increase in the second year. This means employers will have an increase in employer contribution rates in the first year, but not as significant as would have otherwise resulted without the phase-in. A recent CalPERS press release explained:
“A sample public agency miscellaneous plan, without phase in, was expected to see an increase in their employer contribution rate of 1.24 percent of payroll over the next 20 years as a result of the lower discount rate. Under the phase in approach adopted by the Board, the employer contribution rate for that sample public agency miscellaneous plan will go up by 0.65 percent of payroll in the first year of the amortization period, followed by an additional increase of 0.64 percent of payroll for a total increase of 1.29 percent of payroll over the two year period.”
Employers with non-pooled plans may choose to opt out of the phase-in plan and apply a uniform increase to all 20 years. However, employers with plans in a risk pool, must phase in the rate increase in order to maintain equity amongst all participating employers in the pool.
If you have any questions regarding the phase-in process, or what it will mean for your organization, please contact any of our attorneys.