The contribution rate for the next fiscal year – which starts July 1, 2023 – has officially been announced. This rate will be effective from July 1, 2023, until June 30, 2024. The new contribution rate was presented to the Board Of Trustees in the November 18 board meeting, along with information regarding the accompanying actuarial study. You can view notes and the live stream for this meeting on our Board and Committee Meetings page, where we post information on all our meetings that are open to the public.
The total contribution rate for FY 2023-24 will be 12.29%. The slight increase of less than two-tenths of one percent is due primarily to lower-than-expected returns on the ASRS fund last fiscal year. The ASRS total fund rate of return was 1.1% for the fiscal year that ended June 30, 2022. The expected long-term rate of return is 7%. The ASRS 10-year average rate of return is 8.9% as of June 30, 2022.
At the end of each fiscal year (June 30), a valuation of the ASRS benefit plans is undertaken by an outside actuarial firm. Guided by the ASRS Funding Policy, the valuation and the recommended contribution rate for the new fiscal year are presented to the ASRS Board of Trustees for adoption.
Contribution rates as a percent of pay, which are paid equally by the member and employer, are actuarially determined and adjusted annually to ensure the plan remains fiscally sound and meets current and future obligations.
There are two portions to the ASRS contribution rate: the Pension & Health Insurance Benefit, and the Long Term Disability Income Plan. The Pension Plan contribution is a pre-tax deduction, and the Long-Term Disability deduction is post-tax. Tax on pension benefits is deferred until payment is made to the member as a benefit or refund.
The two main components of the contribution rate are the contributions required to fund the normal cost of the pension benefit for the year, plus the contributions needed to make up for any previous shortfall that may have occurred. This would include past years when returns fell below expectations, and factors in changing assumptions and demographics, such as increased life expectancies.
A primary goal related to contribution rates, as outlined in the Funding Policy, is to mitigate contribution rate volatility from year to year while keeping the ASRS on a path to a fully funded status.
Minor fluctuations in the rate are expected over the next several years, with a gradual decline over time.
by Dave Cannella, Public Affairs
