Calculating Contribution Rates

Process to Set Contribution Rates

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.

Compensation Limits

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.

Cost Sharing

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.

Implementing Contribution Rates

Notification of New Rates

The Retirement Board generally adopts new contribution rates in February of each year. Shortly after, each participating employer is notified of the new employer and employee contribution rates that should be implemented effective with the first full pay period in the upcoming fiscal year.

The actuarial valuation report containing the employer and employee rates is posted in the Actuarial Reports page of this website immediately after it is adopted by the Retirement Board. Employer Contribution Rates and Employee Contribution Rates booklets are also available on this website and contain additional cost sharing details that may not be included in the actuarial valuation report.

Effective Date of New Rates

The contribution rates determined in each valuation (as of June 30) will apply to the fiscal year beginning 12 months after the valuation date. For example, the contribution rates found in the June 30, 2021 actuarial valuation are effective July 1, 2022 through June 30, 2023.