August 31, 2012
External Affairs Branch
Robert Udall Glazier, Deputy Executive Officer
Brad Pacheco, Chief, Office of Public Affairs
Contact: Amy Norris, Information Officer
CalPERS Releases Cost Analysis of Pension Reform Legislation
SACRAMENTO, CA – The California Public Employees’ Retirement System today released an Actuarial Cost Analysis of the proposed Public Employee Pension Reform Act (PEPRA) of 2013. If enacted, CalPERS estimates the proposed legislation will save between $42 billion and $55 billion over 30 years for CalPERS administered pension plans.
“Our Actuarial staff worked quickly and thoroughly to produce the best cost analysis we could in the time allotted,” said Alan Milligan, CalPERS Chief Actuary. “The analysis contains near and long term savings estimates intended to assist our Legislators before they vote on the proposal today.”
The analysis only reflects the savings for employers participating in CalPERS and only for retirement benefits provided by CalPERS. A complete analysis of the cost impact of the changes will require information on the impact on other systems and on other areas such as post-retirement medical benefits.
In preparing this analysis, CalPERS actuaries had to make many assumptions. These included:
- The use of the current discount rate of 7.5 percent
- Revised assumptions about members' probability of retirement (to reflect the lower benefit levels)
- Assumptions about the characteristics of new hires (such as age and salary at hire)
- Local agencies will behave similarly to a sample local agency chosen for the analysis
Actual retirement experience could produce higher or lower savings if it differs from the assumptions used in the analysis. For instance if the average retirement age increases more or less than expected, the savings will be greater or less than shown.
Results were grouped by Schools, State plans and Local Agency plans. The low value in the savings range assumes the active government workforce will stay the same. The high value in the savings range represents an increase of the active workforce of 1 percent per year, similar to the growth in the population of the State.
Due to the very limited timeframe for completing the analysis, the breakdown of these savings between the State, schools and local agency employers is not complete. Also, the analysis does not take into consideration any of the expenses for implementation of this legislation, and those costs would somewhat offset the estimated savings. Lastly, the year-by-year impact is also not complete. What is available (reflecting the bulk of the savings) is included in the analysis.
Additional analysis may be completed if necessary. CalPERS is committed to working with the Legislature in the process to ensure public employee retirement plans continue to be sustainable, secure and cost-effective. The full text of the Actuarial Cost Analysis and the Updated Preliminary Analysis of the Conference Committee Report are available online at www.calpers.ca.gov.
CalPERS provides retirement benefits to 1.6 million State, public school, and local public agency employees, retirees, and their families, and health benefits to more than 1.3 million members. For more information about CalPERS, visit www.calpers.ca.gov.