What Every Employer Should Know
Long-term expected contribution rates are the rates that would be realized if the Fund consistently earned a 7.5 percent rate of return annually. On a long-term basis, employers should expect to pay these rates as a percentage of their payroll to the Retirement System each year. Most Employees’ Retirement System (ERS) members are enrolled in Article 15. New members of the System are registered in Tier 6, which began April 1, 2012. The Tier 6 Article 15 long-term expected contribution rate is 6.5 percent of payroll (6.6 percent if you have elected Section 41(j), the sick leave benefit).
Most Police and Fire Retirement System (PFRS) employers offer their employees the 384-e retirement plan, which allows members to retire after completing 20 years of service. Employers can choose between a contributory plan, where employees must also pay contributions, or a non-contributory plan, where only the employer makes contributions. The long-term expected contribution rate for the Tier 6, 384-e contributory plan is 10.8 percent of payroll and non-contributory is 16.2 percent of payroll.
If the Fund averages more than 7.5 percent over an extended period of time, you should expect your contribution rate to be less than the long-term expected rate. If the Fund earns less than 7.5 percent over an extended period of time, you should expect your contribution rate to be higher than the long-term expected rate.
You can compare the long-term expected rates to the actual annual contribution rates from 1994 to the present for both ERS and PFRS employers on these charts.
This chart shows the long-term expected rates and the actual annual contribution rates for ERS Tier 4 (Article 15). You can see that, beginning in Fiscal Year 2011, the actual rates are higher than the long-term expected rates.
This chart shows the long-term expected rates and the actual annual contribution rates for PFRS Tier 2 (384-e). You can see that, beginning in Fiscal Year 2012, the actual rates are higher than the long-term expected rates.