How Contribution Rates are Set

VCERA is funded by 1) contributions from both employers and employees (i.e., members) and 2) investment earnings on those contributions. Together, these funding sources enable VCERA to offer its members retirement benefits that last a lifetime.

As permitted by California retirement law, employer and employee retirement contribution rates are adjusted annually to ensure that contributions and anticipated earnings are sufficient to fund the promised benefits. Adjustments are based on actuarial methods and assumptions that project the system’s ability to pay for future benefits, delivered via the annual Actuarial Valuation report from VCERA’s consulting actuary (“Actuary”). VCERA’s Board of Retirement (BOR) approves the annual contribution rates based on recommendations from the Actuary. The plan’s employers then implement any rate adjustments. When calculating contribution rates, the actuarial valuation allocates two components of pension costs described as “Normal Cost” and “Unfunded Actuarial Accrued Liability”, or UAAL. Normal cost is the projected annual expense required to fund the retirement benefits associated with the service credit earned by active members in the current year; the cost of this is shared by both employers and employees. UAAL is the accrued liability from past service that is not fully funded yet and is the sole responsibility of the employer. The contribution rates assigned to pay for these two distinct cost components are set by statute.

Employer and Employee (Member) Contribution Rates

Cost Sharing

Cost sharing contribution rates apply to all PEPRA members and to Legacy members employed by the County of Ventura and Air Pollution Control District.  With cost sharing, the employee and employer share the normal cost of retirement benefits equally, with each paying half of the normal cost to pay for the pension benefits earned in the current year. All members under the same benefit tier contribute the same percentage, regardless of age. In addition to half the normal cost, the employer contribution rates include any unfunded actuarial accrued liability (UAAL).

For PEPRA members, 50/50 cost sharing between the employee and employer is required under Government Code section 7522.30. Legacy members employed by the County of Ventura and Air Pollution Control District have 50/50 cost sharing (instead of the uniform contribution rates set by a statutory formula described below) by labor agreement under Government Code section 31631.5. 

Uniform Contribution Rates

Uniform contribution rates apply to Legacy members employed by the Ventura County Superior Court and Ventura Regional Sanitation District. Uniform contribution rates are used for members entering VCERA membership on or after August 1, 1974, under Government Code sections 31621.11 (General members) and 31639.26 (Safety members), pursuant to an election made by the Board of Supervisors in 1974, unless cost sharing is required or negotiated. Under uniform rates, all members under the same benefit tier and employer contribute the same percentage, regardless of age. Uniform rates for general and safety members are set based on the average age of entry into membership for each of these membership categories. 

Contribution Exceptions/Limits

Legacy Safety Tier 1 members will no longer have employee contributions deducted from their paychecks upon reaching 30 years of continuous service, under Government Code section 31664. Prior service for a VCERA employer and reciprocal service is counted toward reaching the 30 years of service, beginning at the time the service is credited, but purchase of public service is not counted toward the 30 years. 

PEPRA compensation limits are defined in Government Code 7522.10. Retirement contributions cease for the remainder of the calendar year when a PEPRA member reaches the annual limit and contributions resume with the first paycheck of the next calendar year.

Contribution Rate Change Process

The BOR has adopted an Actuarial Funding Policy which sets forth the funding objectives and guidelines for VCERA to help ensure systematic funding of future benefit payments in a consistent and efficient manner.

In accordance with Government Code section 31453, an actuarial valuation that covers the mortality, service, and compensation experience of the members and beneficiaries, and evaluates the assets and liabilities of the plan, must be performed at least every three years under the supervision of an actuary. The BOR has determined it prudent to conduct an actuarial valuation annually. Each year, VCERA’s actuary examines the pension plan to determine whether contributions are being accumulated at a rate sufficient to provide the funds needed to pay the benefits promised by law to members and eligible beneficiaries, and prepares an actuarial valuation report. Upon the basis of the investigation, valuation, and recommendation of the actuary, the BOR approves any necessary contribution rate changes.

After contribution rate changes are approved by the BOR, the new rates are presented to the Board of Supervisors (BOS) for approval at least 45 days prior to the beginning of the next fiscal year, on July 1 each year. Once approved, the new rates also apply to VCERA’s participating Districts (i.e., Courts, APCD, VRSD, VCERA). The contribution rate changes adopted by the BOS are implemented for County employees no later than 90 days after the start of the fiscal year, per Government Code section 31454. The governing bodies of participating Districts also implement the new rates no later than 90 days after the start of the fiscal year.

Why Contribution Rates Change

The actuarial valuation uses certain assumptions to project future benefit payments. These assumptions generally fall into one of two categories: 1) demographic, or 2) economic. Demographic assumptions include those regarding employee service and terminations, retirement ages, benefit types accessed, and mortality rates. Economic assumptions include those regarding future salary increases, inflation, and investment earnings. Changes to these assumptions are based on an Actuarial Experience Study, which VCERA conducts every three years.

When assumptions change, contribution rates may go up or down. 

For example, one of the economic assumptions evaluated during the study is the assumed investment rate of return. Over the past several years, VCERA has reduced its assumed rate to align with projected long-term changes in the economy and expected investment returns. When the investment return assumption is lowered, typically the employer and employee contributions are increased so the retirement system will continue to receive adequate funding.

For more information about assumptions factors impacting contribution rate changes, see the Actuarial Valuations and Actuarial Experience Studies.