What does this provision do?

This statutory change implements a 4% increase in employer contributions over 8 years. It also allows the FPPA Board to further increase the required contributions, equally between employer and employee, upon approval through an election by both members and employers. The Board retains its statutory authority to roll back benefits to maintain actuarial soundness.

Moreover, this provision authorizes the FPPA Board to lower the reentry contribution rate to partially compensate for the 4% reentry surcharge, should the total contribution rate be in excess of what is necessary to fund the plan. The adjustment will vary by department. FPPA is currently drafting rules regarding the process to implement this provision.

Why is this increase necessary?

In the past few years, experience has led FPPA to adopt new assumptions about things like retiree life expectancy and investment returns. Based on the results of what’s called an experience study—a comparison between what we assumed would happen and what actually happened during a specific period of time—we determined that our members are living longer in retirement, and that we have a lower expected rate of return.

Making changes to these assumptions has lowered the funded status for the Statewide Defined Benefit Plan below the 100% funded mark. Being less than 100% funded reduces our ability to protect the plan from things like a market downturn or to provide meaningful benefit adjustments.

Increasing employer contributions by 4% over 8 years (at a rate of 0.5% per year) will help protect the plan from adverse market conditions and make it more likely that the Board will be able to authorize more meaningful benefit adjustments in the future.

This increase will also equalize the contribution rates paid by members and employers. Up until 2014, contribution rates for both members and employers were set at 8%. Then in 2014, FPPA’s members elected to increase their contributions by 4% over an eight year period, raising their contribution from 8% to 12% between 2015-2022. The election did not affect employer rates, which stayed at 8%. This provision will raise employer contributions to once again match the rate paid by members.

Please also note that the official bill included language about increasing member contributions by 4%. This simply memorialized the results of the member election mentioned above, officially putting the increase into statute. This was not a new change to member contributions.

BOTTOM LINE: INCREASING EMPLOYER CONTRIBUTIONS OVER SEVERAL YEARS TO MATCH MEMBER CONTRIBUTIONS WILL HELP TO MAINTAIN PLAN STRENGTH AND STABILITY.

A note for members of the Statewide Defined Benefit Plan: Supplemental Social Security Component (SWDB-SS): The provision described on this page also applies to members of the SWDB-SS component, but at a different rate. For SWDB-SS participants, employer contributions will increase at a rate of 0.25% per year over 8 years, for a total increase of 2.0%


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