Risk pooling is the process of combining assets and liabilities across employers to produce large, risk sharing pools. Risk sharing pools dramatically reduce or eliminate large fluctuations in an employer's retirement contribution rate caused by unexpected demographic events.
Sections 20840, 20841, and 20842 of the California Government Code allow the CalPERS Board to create risk pools and mandate public agency participation in the pools. Risk pooling for public agencies went into effect with the June 30, 2003, first-pooled valuations. The first-pooled contribution rates became effective July 1, 2005.
Pools were initially created according to their benefit formula and employee classification (miscellaneous or safety). Pension reform in 2012 introduced new miscellaneous and safety benefit formulas for all new hires effective January 2013. This essentially closed all previous pools to all new employees, which negatively affected the payroll growth assumption. In May 2014, the CalPERS Board approved a change to combine all existing pools into two pools, one for all miscellaneous groups and one for all safety groups. For additional information on changes to the risk pooling structure, refer to the Board's actuarial policies.
Mandatory Risk Pool Participation
Participation in either the miscellaneous or safety risk pool is mandatory for public agencies with fewer than 100 active members.
- Mandated participation occurs on an annual basis. If a rate plan has less than 100 active members on any valuation date, the plan will be placed into the risk pool (safety or miscellaneous) effective on that valuation date.
- Once a plan is in a risk pool, it may not leave and become a stand-alone plan, even if it grows to have more than 100 active members.
- Pooling will not affect your ability to contract for additional benefits or reclassify employees.
- The threshold for mandated participation is based on the active membership of the rate plan. For example, an employer with a miscellaneous plan with 175 active members and a safety plan with 50 active members would be required to have its safety plan in a risk pool, but not its miscellaneous plan.
Voluntary Risk Pool Participation
Public agency plans with more than 100 active members may voluntarily join a risk pool. Call us at 888 CalPERS (or 888-225-7377) for more information.
Risk Pool Benefits
Government Code Section 20840(e) requires each risk pool contain certain benefits. Mandated benefits become effective on July 1 of the contribution year set by the valuation.
Mandated benefits include:
- Cancellation of payments for service credit purchase upon industrial disability retirement (Section 21037)
- Credit for unused sick leave (Section 20965)
- Local system service credit included in basic death benefit (Section 21536)
- Military service credit as public service (Section 21024)
- Military service credit for retired persons (Section 21027)
- Pre-retirement optional settlement 2 death benefit (Section 21548)
- Public service credit for Peace Corps or America Corps: VISTA Service (Section 21023.5)
- Public service credit for periods of layoff (Section 21022)
- Public service credit for service rendered to a nonprofit corporation (Section 21026)
All optional benefits are available to plans participating in risk pools; they can vary within the same pool. We assign each optional benefit to one of three classifications based on the cost impact of the benefit. When new benefits become available as a result of legislation, our chief actuary will determine their classification in accordance with Board-approved criteria. Employers contracting for a more expensive optional benefit are required to pay a surcharge in excess of their pool's rate.
Class 1 benefits may vary by rate plan within each risk pool. Agencies contracting for Class 1 benefits are required to pay a surcharge.
Class 1 benefits include:
- Cost-of-Living Adjustment (COLA) - available choices are 3, 4, or 5 percent COLA (Section 21335)
- Employee contribution rate for California State University auxiliary organizations reduced to state member level (Section 20680)
- Employees sharing cost of additional benefits (Section 20516)
- Employer paid member contribution converted to pay rate during the final compensation period (Section 20692)
- Improved industrial disability allowance for local safety members (Section 21430)
- Increased industrial disability allowance to 75 percent of final compensation (Section 21428)
- Industrial disability retirement for local miscellaneous members (Section 21151)
- Post-retirement survivor allowance (Sections 21624, 21626, 21628)
Class 2 benefits may vary by rate plan within each risk pool. Agencies contracting for Class 2 benefits will be required to pay the full one-time cost of the benefit. Class 2 benefits are the optional benefits, other than Class 1 benefits, that meet both of the following criteria:
- No impact on the ongoing cost (normal cost) of the risk pool
- Provide a one-time increase in benefit with an identifiable increase in accrued liabilities
Class 2 benefits include:
- Credit for local retirement system service for employees of agencies contracted on a prospective basis (section 20530.1)
- Golden Handshakes - two years additional service credit (Section 20903)
- Limit prior service to members employed on contract date (Section 20938)
- Military service credit (Section 20996)
- One-time, 1 to 6 percent, ad hoc Cost-of-Living Adjustment (COLA) increases for members who retired or died prior to January 1, 1998 (Section 21328)
- Prior service credit for employees of an assumed agency function (Section 20936)
- Public service credit for employees of an assumed agency or function (Section 21025)
- Public service credit for limited prior service (Section 21031)
Class 3 benefits may vary by rate plan within each risk pool. However, the employer contribution rate will not vary within the risk pool due to the Class 3 benefits. Class 3 benefits are the optional benefits that impact the ongoing cost (normal cost) of the risk pool by no more than 0.25 percent of payroll.
Class 3 benefits include:
- Alternate death benefit for local fire members credited with 20 or more years of service (Section 21547.7)
- Improved nonindustrial disability allowance (Section 21427)
- Optional membership for part-time employees (Section 20325)
- Partial service retirement (Section 21118)
- Post-retirement lump sum death benefit
- $600 (Section 21622)
- $2,000 (Section 21623.5)
- $3,000 (Section 21623.5)
- $4,000 (Section 21623.5)
- $5,000 (Section 21623.5)
- Public service credit for California Senate Fellows, Assembly Fellowship, Executive Fellowship, or Judicial Administration Fellowship programs (Section 21020.5)
- Removal of contract exclusions prospectively only (Section 20503)
- Special death benefit for local miscellaneous members (Section 21540.5)
- Actuarial Policies
- Assembly Bill 1974
- Assembly Bill 340
- California Code of Regulations
- California Employers' Retiree Benefit Trust Fund (CERBT)
- California Government Code
Frequently Asked Questions
- If we have more than 100 employees, why are we mandated into a risk pool?
Mandated participation in risk pools is based on the number of active employees in each rate plan as of June 30, 2003. If you have both miscellaneous employees and safety employees, look at the total number of employees in each category. For example, if you have 80 miscellaneous employees in your miscellaneous plan and 40 safety employees in your safety plan, both rate plans are in a risk pool, even though you have more than 100 active employees.
- If we were mandated into a pool, is our rate affected by other employers granting industrial disability retirements (IDR)?
Risk pooling stabilizes rate fluctuations caused by unexpected events. The impact of a single employer's unexpected demographic events, such as IDR, service retirements, and deaths is shared by all of the employers within the pool. Risk pools can deliver the additional benefit of focusing your attention on events such as disability retirement, thereby promoting more uniform and consistent practices among all employers in the risk pool. Fair, impartial, and consistent decisions on disability retirements will promote lower rates for every employer in the pool.
- What do we need to do for our contract to reflect the benefit provisions that will be mandated once we join a pool?
No changes to the contract are necessary. Each contract contains language ensuring all mandated benefit provisions apply to the members covered under the contract.