Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

Control Section 3.60

This control section specifies the contribution rates for the various retirement classes of state employees in the Public Employees' Retirement System (PERS). The section also authorizes the Department of Finance to adjust any appropriation in the budget bill as required to conform with changes in these rates. In addition, the section requires the State Controller to offset these contributions with any surplus funds in the employer accounts of the retirement trust fund.

State Contribution Rates to PERS Undetermined

We withhold recommendation on 2002-03 state contribution rates for retirement benefits pending (1) the outcome of the proposed deferral of retirement contributions and (2) final determination of the actual rates to be applied in the budget year.

Under current law, PERS is responsible for developing employer contribution rates each year based on actuarial analyses. Normally, PERS would not determine 2002-03 rates until spring. But as we discuss in the Crosscutting Issues section of this chapter, the Governor's budget proposes deferring state retirement contributions for the budget year. This would reduce budget-year contribution rates to those currently listed under this item in the 2002-03 Budget Bill.

However, if the Legislature does not approve the proposed retirement deferral, then 2002-03 contribution rates would increase from their present level. Although PERS would set these rates in the spring, PERS has estimated that retirement costs would increase from the current-year level of $677 million to about $1 billion in the absence of the proposed deferral. This includes an increase in General Fund costs of $183 million.

Pending the outcome of the proposed retirement deferral and final determination of 2002-03 rates, we withhold recommendation on this item.

Return to General Government Table of Contents, 2002-03 Budget Analysis