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The Frequently Asked Questions below pertain to the 2016 employer contribution rates for the Indiana Public Retirement System (INPRS) that oversees eight funds in the system. Employers recently received communication regarding their employer contribution rate for 2016.
The current rate is 7.5 percent beginning July 1, 2014, through June 30, 2015. The 2016 rate will remain the same at 7.5 percent and will be effective July 1, 2015, through June 30, 2016.
The contribution rate varies based on employer. The composite rate for 2016 is 11.2 percent and is unchanged from 2015. As allowed by Senate Enrolled Act 549 described below, this rate pertains to over 94 percent of PERF employers for 2016.
The current rate is 19.7 percent beginning Jan. 1, 2015, through Dec. 31, 2015. The 2016 rate remains the same at 19.7 percent effective Jan. 1, 2016, through Dec. 31, 2016.
Effective dates are as follows:
Employer contribution rates are reviewed annually by the INPRS Board of Trustees and are based on the actuarial valuation of the prior fiscal year (July 1 through June 30). Thus, the 2016 employer contribution rate was based on the actuarial valuation of the fiscal year ending June 30, 2014.
The INPRS Board of Trustees is authorized to set the employer contribution rates. The board uses the expert assessment of actuaries and considers liabilities, assets, and the amount needed to fund past and estimated future benefit payments while maintaining the health of the fund.
The employer contribution rate is determined by investment performance over a rolling four-year period, as well as the demographics of fund members, such as age, salary and years of service.
Actuarial assumption changes can also play a role. To determine funds necessary to pay member benefits, INPRS’ actuaries use economic and demographic assumptions to predict the amount and timing of the benefits that will be paid as well as the amount and timing of contributions required. Those assumptions are periodically compared to the actual experience of our members and to economic forecasts to ensure that they reflect recent trends and expectations. Lower expected returns on investments means higher employer contributions are needed to fund benefits. In addition, recent studies show that, on average, people are living longer. As such, the mortality assumption used by our actuaries was updated to reflect longer life expectancy. Since benefits are paid to our members for life, longer life expectancy means more funds are needed to pay the benefits.
Previously, a separate contribution rate was calculated for each of PERF’s employers. Senate Enrolled Act 549, which passed in 2011, allows INPRS to create a pool of employers with a common rate. This is intended to reduce the year-to-year volatility of employer contribution rates.
No. The employer contribution rate is used to fund the pension component of the retirement benefit. The 3 percent that employers may resolve to pick up for employees goes toward the Annuity Savings Account (ASA) component of the members’ retirement benefits.
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