April 18, 2012
External Affairs Branch
Robert Udall Glazier, Deputy Executive Officer
Brad Pacheco, Chief, Office of Public Affairs
Contact: Edward Fong, Information Officer
CalPERS to Phase in Employer Impact of Discount Rate Reduction
Employers Will Pay Half of Rate Increase in First Year
SACRAMENTO, CA – The California Public Employees’ Retirement System (CalPERS) Board of Administration today adopted a policy to phase in the impact on employers of last month’s change in economic assumptions.
The assumption change, which included the reduction of CalPERS’ discount rate to 7.5 percent from 7.75 percent, will result in employer rate increases of about 1 percent to 2 percent of payroll for most miscellaneous retirement plans and a 2 percent to 3 percent increase for most safety plans.
“California’s public employers are continuing to face difficult budgeting challenges during this economic downturn,” said CalPERS Board President Rob Feckner. “Phasing in the rate increase will give employers a little more breathing room in the first year as they struggle to make ends meet in a difficult economic environment.”
Under CalPERS Board policies, any change in unfunded liability due to changes in demographic or economic assumptions is amortized over 20 years. Under the policy adopted today by the CalPERS Board, the change will still be amortized over 20 years but there will be a smaller payment in the first year and slightly higher payments in later years. As a result, most CalPERS employers will see about half of the projected rate increase in the first year and the rest of the increase in the second year.
“Our contracting agencies that don’t participate in pooled plans will have the option to decline the phase in of increases,” said Pension and Health Benefits Chair Priya Mathur. “We are committed to working with our employers by providing as much flexibility as is prudent through this process.”
A sample public agency miscellaneous plan, without phase in, was expected to see an increase in their employer contribution rate of 1.24 percent of payroll over the next 20 years as a result of the lower discount rate. Under the phase in approach adopted by the Board, the employer contribution rate for that sample public agency miscellaneous plan will go up by 0.65 percent of payroll in the first year of the amortization period, followed by an additional increase of 0.64 percent of payroll for a total increase of 1.29 percent of payroll over the two year period.
For State and Schools plan, the first year of the employer rate increase due to the assumption change will be the fiscal year that begins July 1, 2012. For local public agencies, the first year of the increase will be a year later, beginning July 1, 2013, and will be reflected in the valuation reports that public agencies receive from CalPERS in the fall of 2012.
Employers with non-pooled plans may opt out of the phase in and apply the same rate increase to all 20 years of the amortization period. Employers with plans in a risk pool must participate in the phase in to maintain equity amongst all participating employers in the pool.
CalPERS, with assets of approximately $235 billion, is the largest public pension fund in the U.S. It administers retirement benefits for more than 1.6 million California state, local government, and public school employees and retirees, and their families, on behalf of more than 3,000 public employers; and health benefits for more than 1.3 million enrollees. The average CalPERS pension benefit is $2,332 per month. The average benefit for workers who retired in the most recent fiscal year that ended June 30, 2011, is $3,065 per month. More information about CalPERS is available at www.calpers.ca.gov.