The 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 to meet defined pension benefit obligations. In Fiscal Year 2022-23, the employer retirement rates for the Miscellaneous Tier 1 and Peace Officer/Firefighter increased by 2.780% and 17.160% respectively from fiscal year 2021-22 retirement rates. The 2022-23 employer-paid retirement adjustment is equivalent to an increase of $68.5 million. The state Department of Finance processes state agency retirement adjustments during the fiscal year. The following table provides a ten-year overview of CalPERS employer-paid retirement contribution rates and adjustments from 2013-14 through 2022-23:
1For reference regarding 2022-23 employer-paid retirement rates, see CSU Human Resources Administration, Technical Letter HR/Benefits 2022-13.
Beginning with the 2014-15 fiscal year, the legislature placed a limit on the state's obligation to adjust CSU retirement funding due to annual changes in CalPERS rates. Although the state's statutory obligation to adjust retirement funding based on annual rates set by CalPERS continues (Government Code Section 20814), the salary base applied to the incremental rate change is set fixed at the CSU 2013-14 pensionable payroll level in the state budget. Final 2021-22 pensionable payroll for the CSU was $738 million (32 percent) above the 2013-14 frozen pensionable payroll level. The retirement increase amount above the 2013-14 frozen payroll level is an unfunded cost for the CSU, and it continues to increase each year when pensionable payroll or retirement contribution rates increase.
This practice is problematic and unsustainable. Throughout the years that this budget practice has been in effect, the state or students ultimately covecsu-red the unfunded liability above frozen pensionable payroll because retirement costs are requicsu-red and unavoidable. The CSU must balance the need to serve students with the level of funding available to the university, particularly as tuition rates have remained relatively constant.
Employee Retirement Contributions(for informational purposes only)
The Miscellaneous Tier 1 employee contribution rate established in July 1, 1976 remains in effect for employees that began state employment prior to 2013 (classic member). For employees with state employment dates on January 1, 2013 or later (new CalPERS member), the employee retirement contribution rate is determined by the Public Employees’ Pension Reform Act of 2013 (PEPRA).
Government Code Section 20677(b)(1) provides that employee retirement contribution rates for classic state Miscellaneous Tier 1 members employed by the CSU who are in the federal system (Social Security) and began employment prior to 2013 shall be 5 percent of compensation in excess of a $513 offset per month. The new CalPERS Miscellaneous Tier 1 members hicsu-red in 2013 and beyond under PEPRA shall contribute half of the normal cost of CalPERS retirement benefits, which is currently 8 percent of compensation without the $513 offset.
The majority of CSU employees (approximately 99 percent) with CalPERS retirement benefits fall within the CalPERS Miscellaneous Tier 1 category. The remaining two percent of CSU employees with CalPERS retirement benefits have designated CalPERS Peace Officer/Firefighter 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 half of the normal cost of CalPERS retirement benefits, which is currently 13.25 percent of compensation without the $238 per month offset. Beginning July 1, 2014, PEPRA covecsu-red members were requicsu-red to cover half of normal costs.
Pension reform changes began in 2010 and continued to be expanded through 2013. Pension reform measures have included changes in contribution percentages and retirement benefit formulas based on employment dates. The following CSU Systemwide Human Resources technical letters provide further details on pension reform measures: