Public Employee Pension Costs to Rise

Cities, county’s and other government employers across California will have to start paying more for employee pensions. The California Public Employees’ Retirement System (CalPERS), the state organization that manages pension funds, has to make assumptions about the interest rate they can earn on pension funds.  The higher the rate they earn the less government and its employees have to put aside in the pension fund.
Yesterday, the Pension and Health Benefits Committee of CalPERS approved a recommendation to reduce CalPERS discount rate – or the rate of investment return the pension fund assumes – from 7.75 to 7.5 percent.

The Committee’s recommendation will be considered by CalPERS full Board for approval today.

If approved by the full Board, the new assumptions will have the following results:

•  State and schools employer contributions will increase by 1.2 to 1.6 percent for Miscellaneous plans and 2.2 to 2.4 percent for Safety plans beginning Fiscal Year 2012-13. According to staff estimates, the change in the discount rate is expected to cost the State $303 million, of which approximately $167 million would come from the State’s general fund.  The school increase would be approximately $137 million.

•  Public Agency contributions will increase by 1 to 2 percent for Miscellaneous plans and   2 to 3 percent for Safety plans beginning Fiscal Year 2013-14.

In March 2011, the CalPERS Board voted to keep the current rate of 7.75 percent by eliminating the margin for negative returns. That decision was partially made to help government employers during these difficult economic times, but was also contingent upon a reassessment this year. CalPERS discount rate was last changed 10 years ago, when it was lowered to 7.75 percent from 8.25 percent.