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Published on Friday, March 31, 2017

Bill uses rainy day fund to buy down PERS 1 liability

The PERS 1 pension plan has an unfunded liability (underfunded actuarially accrued liability or UAAL) of about $5 billion. That means that its assets are not sufficient to cover all of its liabilities in the long-term. To address this underfunding, employers have been paying surcharge on top of their regular contribution rates to boost funding levels. The employer surcharge is in effect until 2030 when the unfunded liability is expected to be eliminated. Employees do not pay the surcharge.

SB 5900 would use $700 million from the rainy day fund (Budget Stabilization Account) to immediately reduce the PERS 1 plan's underfunded liability. The bill then requires that $700 million is paid back to the State General Fund with 7.7% interest (this is the current assumed rate of return for pension fund investments) by continuing the employer surcharge at current levels through 2027. Then, for FY 2030, employers would see a reduction in the surcharge providing them some funding relief.

The Senate proposed budget assumes that this proposal will provide $56 million in revenue to the General Fund in 2018.

For city employers who pay and would continue to pay the same current PERS 1 UAAL surcharge rate, the bill creates no additional fiscal impact in the near term and, in FY 2030, provides some fiscal benefit.

Fiscal year

Employer surcharge rate*

Projected surcharge rate after $700 million

Difference to be used to repay $700 million

2018

5.03%

4.63%

.40%

2019

5.03%

4.43%

.65%

2020

4.82%

4.17%

.65%

2021

4.82%

4.17%

.65%

2022

3.86%

3.50%

.36%

2023

3.86%

3.50%

.36%

2024

3.50%

3.50%

0%

2025

3.50%

3.50%

0%

2026

3.50%

3.50%

0%

2027

3.50%

3.50%

0%

2028

3.50%

3.47%

.03%

2029

3.50%

0%

3.50%

2030

1.48%

0%

.74%

*Employers would continue to pay this surcharge rate under SB 5900.

Categories: Personnel
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