Stabilize Your Rate By Paying More Than Required

Elected rates and additional contributions are two rate-stabilization strategies you can use to create a buffer against adverse plan experience.

There are several reasons why your employer rate might change from year to year. Annual investment returns, plan changes and actuarial gains and losses can all increase or lower your required rate, depending on the circumstances.

By now, you have heard the news that TCDRS’ 2021 investment return means rate decreases for most TCDRS employers — but did you know that employers who benefit the most from excellent returns and experience more stability in down years have something in common?

Currently, more than 35% of TCDRS employers have adopted an elected rate, meaning they have chosen to pay a higher employer rate than required.

Why Pay More?

Paying more than required — either through an elected rate or a one-time, additional contribution — can build up your plan’s reserves, creating a buffer that will help offset rate increases caused by adverse plan experience.

As TCDRS Employer Services Representative Erika Aguirre explains, elected rates and additional contributions are a smart way to pre-fund benefit increases and pay down liabilities more quickly.

“While employers are responsibly funding their plans by simply paying their required rates, many employers want to lessen their liabilities at an accelerated pace and become fully funded,” she says. “I recommend elected rates and additional contributions to decision-makers who have the philosophy of funding their plans and building their assets at a faster pace than our standard amortization schedule.”

When Is a Good Time?

A good time to consider adopting an elected rate is in years when your required TCDRS rate for the upcoming year will decrease, and you have the budget to continue paying the same rate or higher.

For example, if your required contribution rate will be lower in 2022, you can elect to keep paying the amount you were paying in 2021 to boost your plan funding.

“When I’m asked about when it might be a good time to adopt an elected rate or make an additional contribution, I always say, ‘As soon as you can afford to,” Erika says. “It is always a great strategy to pre-fund benefit increases and pay down liabilities.”

Keep in mind that paying only a little more than required may not be enough to adequately buffer your plan from rate changes. Please contact your TCDRS Employer Services Representative for help determining an optimal rate that will best meet your unique needs over the long-term.

How Do I Adopt an Elected Rate?

You have the option to adopt an elected rate or make an additional contribution for the coming year during your annual plan decision cycle. You will submit these plan changes in the Plan Customizer tool within your TCDRS Employer Portal.

If you would like help determining an elected rate that has a higher chance of remaining stable from year-to-year under various market scenarios or have any other questions about rate stabilization strategies, please contact your TCDRS Employer Services Representative at 800-651-3848.

You can find out who your representative is here.

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