In Limbo Waiting for CalPERS Decision on Projected Earnings: How Low Can You Go?
Defined-benefit pension plans such as CalPERS and UCRP have to forecast what their earnings on their assets will be over extended periods of time. A lower forecast will produce a higher estimate of their unfunded liability. In turn, a higher estimate of the unfunded liability will likely trigger higher employer and/or employee contributions to the plan.
It is important to note, however, that changing the forecast does not change the future in the sense that the earnings rate will be what it turns out to be. If the forecast of the earnings rate over time seems to be too low over time, it will be raised. If it is too high, at some point it will be lowered. The process is (supposed to be) iterative.
At present, UCRP assumes 7.5% as its long-term earnings rate which is lower than the 7.75% CalPERS assumes. But yesterday’s LA Times carried an article suggesting that the CalPERS rate could be lowered to 7.25%. Were that to happen, there would be pressure on the Regents to lower the UCRP rate and, thus, pressure to raise employer and employee contributions to our plan.
The LA Times article is at http://www.latimes.com/business/money/la-fi-mo-upcoming-calpers-vote-could-boost-government-pension-costs-20120307,0,2862699.story
So we are in limbo, waiting to see how low CalPERS goes:
[youtube=http://www.youtube.com/watch?v=9jkowBtwnHM&w=320&h=195]