The Ballooning Cost of Mandated CALSTRS Rate Increases
When the 2015-16 fiscal year began on July 1st, it marked the second year of mandated increases to the CALSTRS employer contribution rate. The required match for 2015-16 is 10.73%, a year-over-year increase of more than 20% above the 2014-15 rate of 8.88%.
The unfortunate part for schools; that was only year two of seven consecutive annual increases.
The passing of California Assembly Bill 1469 in June 2014 triggered mandated contribution increases by the state, schools, and plan members phased in (at a minimum) over the next seven years. Exhibit-1 below provides the yearly employer matching rates scheduled thru the 2020-21 fiscal year.
Exhibit-1 Annual Projected CALSTRS Employer Contribution Rates
| 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | |
| Employer Contribution Rate | 8.25% | 8.88% | 10.73% | 12.58% | 14.43% | 16.28% | 18.13% | 19.10% |
As showed above, one can see the skyrocketing increases to the annual rate that schools will be required to contribute towards CALSTRS. Consequently, the increased rates have the potential to significantly affect a school’s annual operating budget. The year-over-year fiscal impact of these increased rates has been outlined using two different scenarios in the exhibits below.
Exhibit -2 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 |
| CALSTRS Contribution | $165,000 | $177,600 | $214,600 | $251,600 | $288,600 | $325,600 | $362,600 | $382,000 |
Exhibit -3 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 |
| CALSTRS Contribution | $165,000 | $182,928 | $227,669 | $274,930 | $324,822 | $377,460 | $432,963 | $469,812 |
For the purposes of analyzing the fiscal impact rate hike, we will use the 2013-14 contribution rate of 8.25% as the base rate, given that this was the employer contribution rate since 1986. If we look at Exhibit -2, in which salaries are kept flat over the seven-year period, the CALSTRS liability increases by 130% jumping from $165,000 to $382,000 by the 2020-21 fiscal year. And that is if we did not give a single employee a raise over seven years.
The effect is amplified even further in Exhibit-3, in which we implemented an annual 3% salary raise into our model. In this scenario, the CALSTRS liability rises to $469,812 in year seven, an increase of 185% over the base year. Moreover, when you consider that our base assumption of $2 million in salaries equates to approximately 30 employees, the effect of the increased rate balloons further the larger the school.
What Does This Mean Moving Forward
Simply put, the total cost of each CALSTRS eligible employee is increasing significantly for schools. When combined with rising health care costs, employers are going to be need to very tactful about both the total numbers of employees and the salary levels that are paid out. By 2020-21, when the STRS rate approaches 20% an employer should expect to allocate upwards of 35-40% for employee benefits; meaning an employee with a base salary of $75,000 will effectively cost over $100,000 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