The Increasing Effect of Mandated CALPERS Rate Hikes
In March 2014 the CALPERS office released “Circular Letter 200-012-14,” outlining projected employer contribution rate changes to the CALPERS fund. Specifically, due to increased living expectancies, market fluctuations and changing asset allocations the employer contribution rate will increase beginning in July 2016.
The Circular Letter provided rate projections for five additional fiscal years thru the 2020-21 fiscal year. The projected rates are provided below in Exhibit- 1.
Exhibit-1 Annual Projected CALPERS Employer Contribution Rates
| 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | |
| Employer Contribution Rate | 11.44% | 11.77% | 12.60% | 15.00% | 16.60% | 18.20% | 19.90% | 20.40% |
As showed above, one can see the annual increase that is projected in each of the following five fiscal years along with a comparison to the beginning base rates from 2014-15 and 2015-16. When compared to the initial rate of 11.7% in 2014-15, the projected rate of 20.4% represents a net increase of 74% and real increase of 8.7%.
Furthermore, it is important to remember that an employer is required to pay Social Security taxes, in addition to the CALPERS retirement contribution for all eligible CALPERS employees. (In contrast, employers are not obligated to pay Social Security taxes for their CALSTRS employees). Exhibit-2 below outlines the true “retirement” cost of CALPERS employees when taking into account both Social Security and CALPERS contributions.
Exhibit-2 Annual Total Employer Contribution Rate for CALPERS Employees
| 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | |
| Employer Contribution Rate | 11.44% | 11.77% | 12.60% | 15.00% | 16.60% | 18.20% | 19.90% | 20.40% |
| Social Security | 6.20% | 6.20% | 6.20% | 6.20% | 6.20% | 6.20% | 6.20% | 6.20% |
| Total CALPERS Contribution Rate | 17.64% | 17.97% | 18.80% | 21.20% | 22.80% | 24.40% | 26.10% | 26.60% |
As you can see, the contribution rate increases significantly when both liabilities that employers are responsible to pay are considered. As calculated in our previous blog on the Increasing Cost of CALSTRS contributions, we will provide an analysis below estimating future CALPERS contributions. Using 2013-14 as our base rate of 11.44%, we will breakdown the estimated cost increase using the same two premises of no employee raises (Exhibit 3) and an annual 3% raise (Exhibit 4).
Exhibit -3 Annual CALSTRS Contribution Amount Without Staff Raises
| 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | |
| Staff Salaries | $2,000,000 | $2,000,000 | $2,000,000 | $2,000,000 | $2,000,000 | $2,000,000 | $2,000,000 | $2,000,000 |
| Total Contribution | $352,800 | $359,400 | $376,000 | $424,000 | $456,000 | $488,000 | $522,000 | $532,000 |
Exhibit -4 Annual CALSTRS Contribution Amount With 3% Staff Raises
| 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | |
| Staff Salaries | $2,000,000 | $2,060,000 | $2,121,800 | $2,185,454 | $2,251,018 | $2,318,548 | $2,388,105 | $2,459,748 |
| Total Contribution | $352,800 | $370,182 | $398,898 | $463,316 | $513,232 | $565,726 | $623,295 | $654,293 |
In reviewing Exhibit 3, in which salaries are kept flat over the seven-year period the total liability (CALPERS plus Social Security), increases by 50% jumping from $352,000 to $532,000 between 2013-14 and 2020-21. Again, in this example, we did not give a single raise for seven years.
This effect of increased CALPERS rate is again significantly greater in Exhibit 4, in which an annual 3% raise is given across all salaries. In this scenario, the total retirement liability increases to $654,000 in year seven, an increase of 85% over the base year.
What Does This Mean Moving Forward
Simply put, the total cost CALPERS employee is increasing for schools. On a salary-adjusted basis, CALPERS employees are a greater cost to schools when compared to CALSTRS employees. By 2020-21, as projected contribution rate approaches 27%, an employer should expect to allocate upwards of 40% for total employee benefits; meaning an employee with a base salary of $75,000 will effectively cost over $105,000 to the school.
Even today it is important to consider this compounding effect when your school considers hiring new employees or whether to give a raise to your staff as what you choose today has a ripple effect into the future.
At the Creative Back Office this is the type of scenario that we thrive at getting our hands on and developing solutions that work for both the school and their employees. As a leading back office provider, we will continue to provide updates and answers that position our schools for success.
-CreativeBackOffice