What does it mean that PSP must be cost neutral?
One of the key provisions is that the PSP program must be cost neutral. This means that in addition to the normal member pension contribution rate of 7, 8 or 9%, the member is responsible for paying the full cost of each additional year of service that is purchased. For example, Tier 5 members currently pay 9% of salary in pension contributions, while the City contributes approximately 19% of sworn payroll toward the pension system. Combined they represent approximately 30% per year to fund the pension system. However, the individual cost factors used to determine your cost for each year of service purchased may increase the combined cost. The cost factors used to establish the actuarial cost for PSP include: • member’s age; • date benefits will first become payable; • number of survivors; • ages of survivors; • member’s pension base; • investment earnings rate assumed by the plan; and • any other factors that are relevant to cost neutrality for the pension plan.
