How Contribution Rates Are Established

Contribution rates are established by a process mandated in "Actuarial Funding of the State Retirement Systems," RCW 41.45 .  In a few plans, rates are a specific percent of salary prescribed in statute.  But in the majority of plans, rates are the product of a funding formula.

The following summary describes the funding process in effect in 2012.  Any part of the funding laws may be modified either temporarily, or permanently at the discretion of the Legislature.

View a summary of the statutory basis for contribution rates in each of the retirement plans.

Contribution rates are expressed as a percentage of members' salaries.

Step 1: (Summer of even-numbered years)

An actuarial valuation is performed by OSA on the most recent data available. The valuation identifies the contribution rates that must be collected annually to pay for the benefits members are expected to earn during their public service.

The manner in which the valuation is performed is subject to statutory requirements and actuarial standards of practice.  OSA calculates and certifies contribtuion rates based on the funding policies, methods, and assumptions set in current law.

The intent of public pension funding is to provide a dependable and systematic process for financing the provided benefits.  Read more>

Rates developed by the valuations are referred to as valuation rates or basic rates.

Step 2: (July of even-numbered years)

The valuation rates developed by OSA for all Plans except LEOFF 2 are recommended to the Pension Funding Council (PFC).  It is the PFC's responsibility to officially adopt any changes to contribution rates.  The PFC also solicits an independent audit to verify the OSA results.  LEOFF 2 rates are adopted by the LEOFF 2 Retirement Board.

Valuation rates routinely become effective at the beginning of odd-numbered fiscal years and are scheduled to remain in effect for two years.

For the Teachers’ (TRS) and School Employee’s (SERS) systems, the fiscal year begins September 1.  For all other systems, the fiscal year begins July 1.

Step 3:  (Beginning in January each year)

The Legislature has the power to enact benefit changes when it convenes each year.  Any of these changes may alter the funding status of the Plans. Current law requires any additional costs be calculated and contribution rates adjusted accordingly.

Supplemental rates are charged in addition to the valuation rates and fund the cost of any benefit enhancements until the next rate-setting cycle.

OSA calculates the cost of benefit changes and an adjustment is made via a temporary supplemental rate increase.  At the beginning of the next rate-setting cycle the cost of any benefit changes is included in the valuation study.

Step 4:  (September of each year)

Supplemental rates typically become effective September 1.  At the discretion of the Legislature, this date may be changed.  In some years, rates may change more than once as a result of separate effective dates for separate legislation.