Budget Proposal: Compensation
2006/07 Employer-Paid Retirement Adjustment
The California Public Employees’ Retirement System (CalPERS) defined benefit pension plan is
funded by employer-paid contributions, employee contributions, and the plan’s investment earnings.
Employer-paid contribution rates are adjusted each year in order to meet defined pension benefit
obligations. After a slight decrease in employer retirement rates for 2005/06, there was an increase
in the 2006/07 employer-paid retirement rates. The CalPERS Board felt an increase was needed in
order to cover future benefit payouts to retired employees.
The CSU 2006/07 employer-paid retirement adjustment is equivalent to $23.3 million. The state
Department of Finance processes state agency retirement adjustments during the fiscal year.
The following table provides CalPERS employer-paid retirement contribution rates and adjustments
from 1997/98 through 2006/07:
Employer-Paid Retirement Rates
(General Fund only)
California Government Code Section 20814 requires the state to include in the annual budget funding
to support the employer-paid retirement contribution rates established by the actuary, and requires
the legislature to adopt the rates and authorize the appropriation in the Budget Act.
For reference regarding 2006/07 employer-paid retirement rates,
see CSU Human Resources Administration, 2006 coded memorandum, Benefits
Employee Retirement Contributions
The miscellaneous tier 1 employee contribution rate has remained constant since July 1, 1976.
Government Code Section 20677 (b)(1) provides that employee retirement contribution rates for state
Miscellaneous Tier 1 members employed by the CSU who are in the federal system (Social Security)
shall be 5 percent of compensation in excess of $513 per month. Most CSU employees (approximately
98 percent) with CalPERS retirement benefits fall within the CalPERS Miscellaneous Tier 1 category.
Retirement benefit formulas were enhanced for employees in the state miscellaneous tier 1 category
to 2 percent of final compensation at age 55 for those who retire on or after January 1, 2000.
The remaining CSU employees with CalPERS retirement benefits have designated CalPERS Peace
Officer/Firefighter category benefit levels. The employee contribution rate for this group is subject to
Government Code Section 20687, which provides that employee retirement contribution rates shall be
8 percent of compensation in excess of $238 per month. Pursuant to a collective bargaining
agreement for the represented employees, the CSU pays the full employee contribution. Retirement
benefit formulas were enhanced for employees in the Peace Officer/Firefighter category to 3 percent
of final compensation at age 50 for those who retire on or after January 1, 2002.