Observations and Worries Over at CalPERS

The excerpt below from calpensions.com deals mainly with a state contribution cut to CalPERS, ostensibly due to increased employee contributions. Some things to note:

1) the state contribution rate to the plan is already roughly at our “normal cost.”

2) CalPERS may come down to UC’s assumed 7.5% rate of expected earnings – or possibly lower. Lower would put pressure on UC to do the same.

3) CalPERS is concerned about federal legislative proposals in the new Congress regarding public pension plan discount rates used for estimating unfunded liabilities.

CalPERS state rate hike cut by $200 million (except)

Ed Mendel, calpensions.com, 12-16-10

The state payment to CalPERS for this fiscal year was cut by $200 million yesterday, reflecting a savings for the deficit-ridden state from agreements by state workers to pay more toward their pensions. The CalPERS board approved the lower rate after unions representing two-thirds of the state workforce agreed to new contracts boosting worker contributions an additional 2 to 5 percent of pay, allowing a similar reduction in the state payment. CalPERS expected the original rate set for the fiscal year beginning last July to boost the annual state payment from $3.3 billion to $3.9 billion. So the $600 million increase would be cut by $200 million…

The current earnings forecast, an average of 7.75 percent a year, may be lowered in February or March to 7.5 percent or possibly 7.25 percent, if CalPERS adds a cushion of “conservatism” used in the past.

…One of the charts given to the board shows a blended state contribution rate of about 17 percent of pay, based on a June 2009 valuation of the fund, increasing to around 25 percent of pay in 10 years.

…Under the new contracts, the state rate for most workers is 17.5 percent of pay, down from 19.9 percent in the first half of the fiscal year. The contribution for most workers increased from 5 to 8 percent of pay.

…CalPERS board member Tony Oliveira, a Kings County supervisor, estimated last month that the investment losses and lowering the earnings forecast would boost his county’s CalPERS rate 55 percent over the next three years…

Noting that his term expires next month, Oliveira gave the board some parting advice. He said the greatest risk facing CalPERS during the next three years is federal intervention. Oliveira pointed to federal legislation introduced this month by three Republican congressmen requiring state and local governments to report their pension debt to the U.S. Treasury using an earnings forecast based on “risk free” bonds, rather than a stock-based portfolio.

U.S. Rep. Devin Nunes, R-Tulare, and others contend that public pension funds use unrealistic earning assumptions to hide massive debt. Under his legislation, governments that failed to make a bond-based debt report could not issue tax-exempt bonds.

…The CalPERS federal lobbyist, Tom Lussier, told the board yesterday that groups are lining up on both sides for a battle over the legislation by Nunes and others. He said he wanted to be “measured” and not lapse into overstatement. “But there clearly is a school of thought,” said Lussier, “that one of the goals of the new house leadership is to create an environment where state and local governments can in fact file for bankruptcy and can, in effect, use that to undo everything from pension commitments to health care benefits to collective bargaining agreements.” …

Full article at http://calpensions.com/2010/12/16/calpers-state-rate-hike-cut-by-200-million/

Too much worry? We’ll leave you with a more encouraging & inspirational note from Elvis: