Employer contribution rates to SCERS will decrease next year as the pension fund continues to strengthen, based on an actuarial analysis being presented to the Board of Retirement on December 11.

The reduction will mark the third year in a row of lower pension contributions, a reversal from years of rate increases due to investment losses from the Great Recession followed by more prudent funding policies that raised contribution rates.

At its December 11 meeting, the SCERS Board of Retirement will review the actuarial valuation and adopt contribution rates for the next fiscal year that begins July 1, 2025. The agenda materials can be found here. The Board meeting begins at 10 a.m. and will be live-streamed from the quick link at scers.gov.

The aggregate employer contribution rate will decrease by 1.07% of payroll to 28.7% for the 2025-26 fiscal year. Employee contribution rate will remain relatively stable in 2025-26. The specific rates vary by employer and retirement tier.

The drop in employer rate is largely due to an extraordinary 27.7% net investment return in 2020-21, which provided a funding cushion for future years. The pension fund also beat its investment target of 6.75% this past fiscal year, finishing with a 9.2% investment return. Employer rates may continue to drop slightly for each of the next three years if SCERS meets or exceeds its investment target. 

“We can lower contribution rates because our funding plan is working,” said SCERS’ CEO Eric Stern. “Our investment performance has continued to beat expectations and keep our plan on a faster track to full funding, which puts SCERS in a position to take some minor pressure off employers.”

Overall, the long-term funding outlook for SCERS improved; SCERS ended the 2023-24 fiscal year with a funded status of 88.7%, an increase from last year’s 86.1%. The fund balance was $13.3 billion as of June 30, 2024, and has continued to grow to $14 billion today.

The funded status is the ratio of pension assets to liabilities. It represents a “temperature check” on how the pension fund is performing at a point in time and guides SCERS’ actuaries on how to adjust contribution rates to ensure the funding is sufficient over the long term to support the benefit obligations due to more than 30,000 employees, retirees, and beneficiaries. SCERS targets a 100% funded status over a 20-year period and is on pace to achieve that goal.