Employer Contributions and Rates

Contribution Rates

Employer Contributions and Rates

Contribution rates are issued by system and broken down by tier and retirement plan:

One of NYSLRS’ funding objectives is the alignment of employer costs with the value of member benefits. Employers who offer their employees better retirement plans or optional benefits generally have higher contribution rates, which results in higher annual costs. For example, if an employer chooses to provide a service-based plan which allows members to retire after a certain number of years of creditable service, the cost will be higher than an age-based plan which requires members to reach a certain age to retire. Charging all employers the same contribution rate would result in employers with lesser benefits subsidizing employers with better benefits.

 

How Contribution Rates Are Determined

The NYSLRS’ Actuary is responsible for ensuring the System properly funds the benefits of members, retirees and beneficiaries. Annually, the Actuary conducts an Actuarial Valuation and compares the cost of benefits to the Fund’s assets. The difference between these two amounts is used to determine the required employer contribution rates.

The Cost of Benefits (Liabilities)

To ensure proper funding, the Actuary evaluates the cost of benefits (liabilities) using reasonable actuarial assumptions, which are grouped into two broad categories:

  • Demographic assumptions, such as rates of employee turnover, disability, mortality and retirement.
  • Economic assumptions, such as interest rates, inflation, cost-of-living adjustments and salary increases.

The Actuary performs annual experience studies, ascertaining how closely the System’s experience is conforming to the assumptions. When there are unexpected demographic or economic events, the cost of benefits is impacted.

Generally, when the cost of benefits is:

  • More than expected, contribution rates increase.
  • Less than expected, contribution rates decrease.

The Fund’s Assets

The Actuary also evaluates the assets available to pay pension benefits at the end of the State fiscal year and compares the annualized return on investments to the assumed rate of return as well as to prior experience (historical returns). Using a smoothing method to help limit fluctuations in employer contribution rates, the Actuary expects an annual gain equal to the assumed rate of return of 5.9 percent, and any investment income above or below the 5.9 percent expected return is spread over the next 8 years.

Generally, when investment income is:

  • More than expected, contribution rates decrease.
  • Less than expected, contribution rates increase.

However, because investment income above or below the assumed rate of return is spread over 8 years, historical returns may offset or cause contribution rates to fluctuate in the opposite direction. For example, if investment income is less than expected for three years in a row and then more than expected at the close of the end of the last State fiscal year, contribution rates may still increase because the gain in the last year may not be enough to offset the losses from the previous three years.

It’s also important to note that the evaluation of the Fund’s assets is considered in relation to the cost of benefits. An increase or decrease to the contribution rates as a result of investment returns may also be offset by changes in the cost of benefits. Contribution rates may not change as expected if the factors affecting the rates offset one another or if one factor has more of an effect on the rates than the other.

 

For More Information

Visit the Financial Statements and Supplementary Information page for:

  • The Actuarial Assumptions Report, which details the assumptions used in the Actuarial Valuation to determine employer contribution rates.
  • The Report of the Actuary, which summarizes the Actuarial Valuation of assets, liabilities and system membership for determining employer contributions.

 

Rev. 9/25