PERAC Memo #12 - 2003: Federal Grant and Appropriations
Federal Grant and Appropriations
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This memo clarifies that the required 9% pension cost recovery on federal grant employee payroll may be treated as an advance payment toward, and used to offset, the system's annual appropriation under its approved actuarial funding schedule, since these employees are already included in the actuarial valuation. Boards using the 9% recovery as an offset must carefully document this practice for audit purposes; boards that failed to collect the 9% but still met their full funding appropriation are not considered to have a funding shortfall, though they were technically non-compliant with federal grant requirements.
Full Text
Memorandum # 12/2003
M E M O R A N D U M TO: All Retirement Boards FROM: Joseph E. Connarton, Executive Director RE: Federal Grant and Appropriations
DATE: March 25, 2003
Several boards have asked about the treatment of federal grant employees and the required appropriation for a system. As you know, for any member whose salary is paid from federal grant monies, each system must recover a pension cost of 9% of the federal grant payroll. This 9% figure has been in place for some time, and was last reiterated in PERAC Memo 6/1996.
Each year the annual appropriation for a system is allocated to each governmental unit based on the actual payroll for employees who are not federal grant employees (unless the system allocates appropriations on an actuarial basis). However, when your system performs an actuarial valuation, all active members (including federal grant employees) are included in the valuation. Therefore, the costs and liabilities of these employees are already included in the appropriation under the funding schedule adopted by the system. PERAC’s position is that the 9% recovery rate for federal grant employees reflects an advance payment for the annual appropriation requirement and may be applied to offset appropriations required under the system’s approved funding schedule.
Any system using the amounts deposited for federal grants as an offset should be careful to document this for audit purposes. If for some reason a system had not been making the 9% required contributions but has consistently made their funding appropriation, there is no funding shortfall, although the plan would not have been in compliance with the federal grant requirements.
Please contact our actuary, Jim Lamenzo if you have any further questions on this issue.