First, the actuary recommends for the Board’s adoption assumptions to be used by the actuary in its actuarial study. Demographic and economic assumptions used in the annual actuarial valuation include investment return, price inflation, general wage growth, payroll growth, and COLA percentages.
After the actuarial study is complete, the actuary recommends employer and employee contribution rates to the Board. The Board considers the actuary’s recommendations in adopting the appropriate contribution rates, which are then conveyed to all participating employers for implementation.
For PEPRA members there is an annual statutory compensation cap, and MCERA cannot accept employer and employee contributions on pensionable earnings over this annual cap. The PEPRA pensionable compensation limit may change year to year and MCERA notifies all employers of changes in December. Effective January 1, 2023, the cap for employees who do not participate in Social Security is $175,250, and $146,042 for employees who do participate in Social Security.
For highly compensated employees in Classic tiers, MCERA cannot accept employer and employee contributions on pensionable earnings over an annual amount set forth by the IRS pursuant to Section 401(a)(17) of the Internal Revenue Code. The IRS sets the annual compensation limits each year and publishes them on its website. Effective January 1, 2023, the pensionable earning limit is $330,000.
In addition to MCERA member contribution rates, certain employees and bargaining units will pay an additional percentage in addition to regular employee contributions. These additional rates are set through bargaining and are used to offset the employer’s ongoing pension obligation.