Each year, ACERA’s actuary calculates the contribution rates that employees and employers must contribute to ACERA’s fund by law in order for us to have enough funds to pay out all the benefits we owe to current retirees, future retirees, and other qualified recipients like beneficiaries.

We’ve received a few questions about contributions recently, so here are some answers to common questions about the retirement fund contributions.

How am I paying into the ACERA fund?

If you’re an actively working employee, you contribute to the retirement fund with each paycheck. You can verify this by looking at the deductions column on your pay stub, and you should see a deduction for the retirement fund.

Is my employer paying into the ACERA fund?

Yes. Your employer is required by state law to pay into ACERA. Your employer sends its contributions directly to ACERA. All of ACERA’s six participating employers are contributing 100% of their annual required contributions this year, and they’ve contributed 100% of their required contributions each prior year. ACERA’s annual financial report always contains a statement to this effect.

How are contribution rates determined?

ACERA utilizes an actuary to calculate our contribution rates. An actuary compiles and analyzes past data and statistics to calculate projections of the future—in this case, ACERA’s actuary is projecting the amount of contributions ACERA needs to collect in order to pay out all the benefits we owe to current retirees, future retirees, and other qualified recipients like beneficiaries of deceased retirees. The actuary also takes into account gains ACERA expects to make from earnings on our investments.

How often are contribution rates adjusted?

Annually. ACERA’s actuary recalculates the contribution rates each year, and each spring (usually in May) provides ACERA an actuarial valuation report with the contribution rates. Each year’s calculations are based on the experiences and data from the previous calendar year. After the Board of Retirement approves them, the new rates take effect each September, and remain unchanged until the next September.

How much did employee contribution rates change for the Sep. 2019 – Sep. 2020 period we’re in vs. the previous period?

Some rates increased and some decreased, though the average combined rate remained the same at 9.34%:

 

Changes in Average Employee Contribution Rates
Membership Type and Tier	2018/2019 Average Rate	2019/2020 Average Rate	Difference
General Tier 1	9.59%	9.54%	-0.05%
General Tier 2 (A)	7.76%	7.75%	-0.01%
General Tier 3 (LARPD)	13.93%	13.99%	0.06%
General Tier 4	8.76%	8.80%	0.04%
Safety Tier 1 (3%@50)	8.61%	8.55%	-0.06%
Safety Tier 2B (3%@50)	15.83%	15.85%	0.02%
Safety Tier 2C (2%@50)	13.35%	13.38%	0.03%
Safety Tier 2D (3%@55)	16.12%	16.15%	0.03%
Safety Tier 4	15.75%	15.58%	-0.17%
All Combined	9.34%	9.34%	0.00%

 

Those are just averages. What’s the individual employee contribution rate that I pay?

Your employee contribution rate is the percentage of your gross pay that you contribute to ACERA’s pension fund. Tier 1, 2, and 3 members have an individual contribution rate based on your age when you entered ACERA. Tier 4 members all pay the same rate. See our tier page to find out what tier you’re in. See our contributions page to see what your individual rate is currently. See our PDF with the previous period’s contribution rates if you’re curious about how your current contribution rate compares to the previous period.

Do my contributions have an effect on how much money I will receive in retirement?

No. Your contributions are not a part of the formula used to compute your benefit paid to you at retirement. The amount of your monthly retirement allowance is based on your age at retirement, how many years of service credit you’ve earned, and your highest average salary.

How much did my employer’s contribution rates change for the 2019-2020 period we’re in vs. the previous period?

Your employer’s contribution rate is calculated as a percent of total employee payroll. The combined employer contribution rate for all tiers increased from 27.82% to 27.96% of payroll:

 

Changes in Employer Contribution Rates
Membership Type and Tier	2018/2019 Total Rate	2019/2020 Total Rate	Difference
Alameda County
General Tier 1	22.30%	22.31%	0.01%
General Tier 2 (A)	21.57%	21.40%	-0.17%
General Tier 4	20.90%	20.83%	-0.07%
Safety Tier 1 (3%@50)	76.41%	80.60%	4.19%
Safety Tier 2B (3%@50)	61.19%	62.34%	1.15%
Safety Tier 2C (2%@50)	62.54%	63.63%	1.09%
Safety Tier 2D (3%@55)	59.64%	61.60%	1.96%
Safety Tier 4	57.92%	59.20%	1.28%
County Combined	30.28%	30.46%	0.18%
Alameda Health System, Superior Courts, & First 5
General Tier 1	23.06%	23.13%	0.07%
General Tier 2	22.33%	22.22%	-0.11%
General Tier 4	21.66%	21.65%	-0.01%
Housing Authority
General Tier 1	28.32%	28.34%	0.02%
General Tier 2	27.59%	27.43%	-0.16%
General Tier 4	26.92%	26.86%	-0.06%
LARPD
General Tier 1	28.32%	33.62%	5.30%
General Tier 2	29.77%	38.41%	8.64%
General Tier 3	23.12%	32.14%	9.02%
All Categories Combined	27.82%	27.96%	0.14%

 

Why do the employers pay more than the employees?

The primary reason is because ACERA currently has an “unfunded liability,” which means that we currently don’t have 100% of the money we’ll need to pay our pension obligations. We currently have 77.2% of the money we’ll need, a number which is known as our “funded ratio.” The employers must pay extra over a fixed period of time, known as an “amortization period,” in order for ACERA to get back up to 100% funding. ACERA’s actuary includes this extra payment in the employer contribution rates, making them higher.

The biggest reason that ACERA and almost all pension funds across the country aren’t currently 100% funded is due to the worldwide financial crisis of 2008.

What are some of the reasons that contribution rates change from year to year?

Employee contribution rates are affected by:

• Changes in the normal costs of funding the plan – The cost to fund the plan, if all actuarial assumptions are met, is called the “normal cost”. Some things can affect the normal cost of the plan, such as benefits being added to the plan.
• Assumed investment return rates – Periodically, ACERA’s Board of Retirement conducts a study of our investment experience, and adjusts the rate of expected long-term investment earnings based on findings from the study. If we expect to earn less, we’ll have to collect more contributions, and vice versa.
• Cost-of-living benefits – The amount of cost of living benefits ACERA pays out to retirees each year varies based on inflation. Our actuary takes this variation into account when calculating the contribution rates.
• Changes in member life expectancy – The actuary uses data to project the average life expectancies of ACERA’s members, which allows ACERA to project the total amount of retirement benefits we’ll pay out. If members’ average life expectancy goes up or down, ACERA would expect to pay more or less (respectively), which can change the amount of contributions we need to collect in order to pay our pension benefit obligations.

Employer contribution rates are affected by:

• All of the above reasons, plus investment gains or losses – If ACERA’s fund doesn’t earn as much as the actuary expected, ACERA’s participating employers have to make up the difference, by law. If ACERA’s fund earns more than the actuary expected, the employers may not need to pay as much. These gains and losses are actuarially “smoothed”—i.e., spread out—over 5 years in order to minimize the effect of market volatility on the rates the employers’ contribute to the fund from year to year. This helps the employers plan their budgets more effectively.

Where can I get more information?

For more information regarding employee contributions and retirement membership, visit our membership page.

If you have additional questions regarding contribution rates, please contact ACERA at www.acera.org/contact-us or by phone at 510-628-3000.